| Abstract: |
As with other commodity markets, markets for trading pollution permits have
not been immune to market power concerns. In this paper, I survey the existing
literature on market power in permit trading but also contribute with some new
results and ideas. <br><br>I start the survey with Hahn’s (1984) dominant-firm
(static) model that I then extend to the case in which there are two or more
strategic firms that may also strategically interact in the output market, to
the case in which current permits can be stored for future use (as in most
existing and proposed market designs), to the possibility of collusive
behavior, and to the case in which permits are auctioned off instead of
allocated for free to firms. <br><br>I finish the paper with a review of
empirical evidence on market power, if any, with particular attention to the
U.S. sulfur market and the Southern California NOx market. |