Skip to Main content Skip to Navigation
New interface
Journal articles

On Outsourced Abatement Services: Market Power and Efficient Regulation

Abstract : In this paper, we consider competitive polluting firms that outsource their abatement activity to an upstream imperfect competitive eco-industry to comply with environmental regulation. In this case, we show that an usual environmental policy based on a Pigouvian tax or a pollution permit market reaches the first-best outcome. The main intuition is based on the idea that purchasing pollution reduction services instead of pollution abatement inputs modifies for each potential tax rate (or out of the equilibrium permit price) the nature of the arbitrage between pollution and abatement. This induces a demand for abatement services which is, at least partially, strongly elastic and therefore strongly reduces upstream market power. This argument is first illustrated with an upstream monopoly selling eco-services to a representative polluting firm under a usual Pigouvian tax. We then progressively extend the result to permit markets, heterogeneous downstream polluters and heterogeneous upstream Cournot competitors. JEL Codes: Q58, D43
Document type :
Journal articles
Complete list of metadata

Cited literature [38 references]  Display  Hide  Download
Contributor : Elisabeth Lhuillier Connect in order to contact the contributor
Submitted on : Thursday, February 13, 2020 - 4:23:34 PM
Last modification on : Sunday, June 26, 2022 - 2:46:53 AM
Long-term archiving on: : Thursday, May 14, 2020 - 4:52:31 PM


On Outsourced Abatement Servic...
Files produced by the author(s)



Damien Sans, Sonia Schwartz, Hubert Stahn. On Outsourced Abatement Services: Market Power and Efficient Regulation. Annals of Economics and Statistics, 2019, 136, pp.55. ⟨10.15609/annaeconstat2009.136.0055⟩. ⟨hal-02477911⟩



Record views


Files downloads