Cap and Trade Policies in the Presence of Monopoly and Distortionary Taxation / Don Fullerton, Gilbert E. Metcalf.

Format:

Book

Author/Creator:

Fullerton, Don.

Contributor:

National Bureau of Economic Research.

Metcalf, Gilbert E.

Series:

Working Paper Series (National Bureau of Economic Research) no. w8901.

NBER working paper series no. w8901

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2002.

Summary:

We extend an analytical general equilibrium model of environmental policy with pre-existing labor tax distortions to include pre-existing monopoly power as well. We show that the existence of monopoly power has two offsetting effects on welfare. First, the environmental policy reduces monopoly profits, and the negative effect on income increases labor supply in a way that partially offsets the pre-existing labor supply distortion. Second, environmental policy raises prices, so interaction with the pre-existing monopoly distortion further exacerbates the labor supply distortion. This second effect is larger, for reasonable parameter values, so the existence of monopoly reduces the welfare gain (or increases the loss) from environmental restrictions.

Notes:

Print version record

April 2002.