Welfare Consequences of Tradeable Emission Permits in a Product Differentiated Market

상품차별화된 시장에서 배출권거래제도의 후생효과

Due to its cost effectiveness, tradeable emission permits (TEP) system has been effectively used in the USA and many other advanced countries. But, academic many researchers have been argued that TEP system would not work as an efficient regulatory tools when there are imperfect competition in permits and/or products markets. Sartzetakis (1997), however, show that TEP system can serve as an effective environmental regulation under the certain demand/cost conditions even though duopolistic production market is not competitive. In this paper we extend Sartzetakis's analysis into the differentiated products markets under the same cost conditions, and examine the relative efficiency of TEP system by comparing it with the command and control system. We then show that the main results of Sartzetakis can hold if two differentiated products markets have the symmetric demands. In particular, it is revealed that social welfare will be increased under TEP system even though consumer surplus may be decreased.