Marketable pollution permits in oligopolistic markets with transaction costs

In this paper, we present a variational inequality framework for the modeli ng, qualitative analysis, and computation of equilibrium patterns in multip roduct, multipollutant oligopolistic markets with marketable pollution perm its in the presence of transaction costs. The model deals explicitly with s patial differentiation and also guarantees that the imposed environmental q uality standards are met through the initial allocation of licenses. An alg orithm is proposed, with convergence results, to compute the profit-maximiz ed quantities of the oligopolistic firms' products and the quantities of em issions, along with the equilibrium allocation of licenses and their prices . Numerical examples are included to illustrate this approach.