International Journal of Business and Economics Volume 4, No. 3 December, 2005

Tradable Emission Permits Regulations:  The Role of Product Differentiation

Sang-Ho Lee

Department of Economics, Chonnam National University, Korea

Sang-Ha Park

Department of Social Welfare, Naju College, Korea

Abstract

This paper examines the role of product differentiation within the model of Sartzetakis (1997, 2004) and shows that consumer surplus may be reduced under a tradable emission permits system rather than a command and control system when there is a high degree of product differentiation or less competition between two firms. We also investigate comparative static effects of the degree of product differentiation on equilibrium output and abatement levels under the two regulatory regimes.

Keywords：command and control system, product differentiation, tradable emission permits system.

JEL Classifications：L1, L5, Q2.

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