Emissions Trading, Firm Heterogeneity and Intra-industry Reallocations, Journal of the Association of Environmental and Resource Economists (2015), 2(1), 1-42 (with Nori Tarui)

Journal of the Association of Environmental and Resource Economists (2015), 2(1), 1-42 (with Nori Tarui)

Design of emissions trading has substantial implications for size distribution and mass of firms within and across industries in the long run. In a general equilibrium model that accounts for endogenous entry and exit of heterogeneous firms, the welfare impacts of emissions trading are analytically decomposed into the effects on economy-wide income, mass of firms, size distribution, markups, and factor prices. Distortionary impacts on size distribution and permit price depend on the conditionality of permit distribution, interactions between changes in entry-exit conditions and in aggregate accounting conditions, the factor intensity of entry, and coverage of non-pollution-intensive sectors in emissions trading. (PDF)

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