Pollution Regulation of Competitive Markets

• 成果类型: Article
• 署名作者: Anand, Krishnan S.; Giraud-Carrier, Francois C.
• 署名单位: Utah System of Higher Education; University of Utah; Utah System of Higher Education; Weber State University
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2019.3413
• 发表日期: 2020
• 页码: 4193-4206
• 关键词: pollution regulation; Cap-and-trade; taxes; COMPETITION

摘要

We develop a model of oligopolistic firms that produce partially differentiated products and generate pollution as a byproduct. We analyze and compare two types of pollution regulation: Cap-and-Trade and Taxes. Firms can respond to regulation by any combination of pollution abatement, output reduction, emissions trading (under Cap-and-Trade), or payment of pollution taxes (under Taxes). We prove that well-chosen regulation can, besides reducing pollution, actually improve firms' profits relative to laissez-faire (unregulated markets), and simultaneously improve consumer surplus and welfare. Thus, regulation Pareto-dominates laissez-faire under a wide range of plausible conditions. These results are driven by an unintended consequence of pollution regulation: Competing firms can use the regulation to tacitly (and credibly) collude to reduce production and improve their profits. We show that the degree of competition plays a critical role in determining the economic consequences of pollution regulation. Our results suggest that the regulator's primary consideration should be the impact of regulation on consumers rather than producers.