Tradable Emission Permits Regulations: The Role of Product Differentiation

Abstract

This paper examines the role of product differentiation within the model of Sartzetakis_x000D_ (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.