Endogenous Market Power in an Emissions Trading Scheme
12:00 - 13:30
This paper contributes to the literature in market power for emissions permits. I consider a two-stage static complete information game where the market power arises endogenously from players’ parameters. In the first stage players bid in an auction for the initial distribution of a fixed supply of permits and in the second stage they trade these permits in a secondary market. For compliance players can also engage in emissions abatement at a quadratic cost. I find that in equilibrium all players earn a positive number of permits in the auction. Moreover, the low emitters have a net selling position in the secondary market, while the high emitters are net buyers. Finally, the secondary market price is unambiguously greater than the auction clearing price, thus rendering the low emitters " the winners" of the emissions trading scheme considered here.
This seminar has been jointly organized by FEEM and IEFE, Bocconi University.