Market power, private information, and the optimal scale of pollution permit markets with application to North Carolina's Neuse River

► We analyze the interplay of market power, private information, and optimal scale in pollution permit markets. ► Market power and private information may lead to lower total costs than competition. ► The performance of the market is not very sensitive to market structure. ► We determine the optimal...

Full description

Saved in:
Bibliographic Details
Published in:Resource and energy economics 2013-09, Vol.35 (3), p.256-276
Main Authors: Yates, Andrew J., Doyle, Martin W., Rigby, J.R., Schnier, Kurt E.
Format: Article
Language:English
Subjects:
Applied sciences
Competition
cost analysis
Costs
Damage
Earth sciences
Earth, ocean, space
econometric models
Engineering and environment geology. Geothermics
Exact sciences and technology
Freshwater
hydrologic models
Market power
Markets
nitrogen
Optimal scale
Optimization
Pollution
Pollution abatement
Pollution permits
Pollution, environment geology
Rivers
sewage effluent
stream flow
wastewater
wastewater treatment
Water pollution
Water treatment and pollution
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:► We analyze the interplay of market power, private information, and optimal scale in pollution permit markets. ► Market power and private information may lead to lower total costs than competition. ► The performance of the market is not very sensitive to market structure. ► We determine the optimal scale for water quality trading in North Carolina's Neuse River. ► The optimal scale generates 1.55 million dollars per year in cost savings relative to typical regulation. We extend the analysis of optimal scale in pollution permit markets by allowing for both market power and private information. We characterize the total costs (abatement costs and damages) under market power and private information and compare them to total costs under competition. It is possible for both market power and private information to lead to lower total costs than competition, but generally the differences between the three market structures will be small. We also conduct an optimal scale analysis of nitrogen pollution from waste water treatment plants (WWTP) into North Carolina's Neuse River System. An economic model of damages and abatement costs is integrated with a hydro-ecological model of nitrogen flow through the Neuse. We determine the optimal number of trading zones and allocate the WWTP into these zones. Under the most likely regulatory scenario, we find cost savings of 1.55 million dollars per year under the optimal market design relative to the typical 303(d) regulation in which the WWTP are not allowed to trade.
ISSN:0928-7655
1873-0221
DOI:10.1016/j.reseneeco.2013.02.003