Business Intelligence

Pollution Permits And The Evolution Of Market Structure

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Executive Summary

The authors explore the long run dynamic implications of subjecting an imperfectly competitive industry to market-based pollution regulation. They are particularly interested in understanding how the allocation of emissions permits in a cap-and-trade program can influence the evolution of a trade exposed oligopolistic industry. Using two decades of panel data on the US Portland cement industry, they estimate a fully dynamic model of firms' strategic entry, exit, production, and investment decisions. They quantify the overall costs of achieving desired emissions reductions and the distribution of those costs.

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