14th journées Louis-André Gérard-Varet

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On Abatement Services: Market Power and Efficient Environmental Regulation
Hubert Stahn, Damien SANS, Sonia SCHWARTZ

Last modified: 2015-05-06


In this paper, we study an eco-industry which provides an environmental service to a competitive polluting sector. We show that even if this eco-industry is highly concentrated, a standard environmental policy based on a Pigouvian tax or on a pollution permit market reaches the first-best, challenging the Tinbergen rule. To illustrate our point, we first consider the upstream monopoly which sells eco-services to a representative polluting firm. We progressively extend our result to heterogeneous downstream polluters and to upstream Cournot competitors. Finally, we underline some limits of our result. It does not hold assuming abatement goods or downstream market power. In the last case we recover Barnet's result


Environmental regulation, Eco-industries, Imperfect Competition, Abatement services