Journal Article

Environmental Externalities and the Optimal Level of Market Power

Munisamy Gopinath and JunJie Wu

in American Journal of Agricultural Economics

Published on behalf of Agricultural and Applied Economics Association

Volume 81, issue 4, pages 825-833
Published in print November 1999 | ISSN: 0002-9092
Published online November 1999 | e-ISSN: 1467-8276 | DOI: http://dx.doi.org/10.2307/1244327
Environmental Externalities and the Optimal Level of Market Power

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  • Renewable Resources and Conservation
  • Agricultural Economics
  • Market Structure, Firm Strategy, and Market Performance

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This article derives the condition under which agricultural chemical producers' desire to under-produce, associated with market power, exactly offsets the tendency to overproduce, due to their failure to consider externality costs of agricultural chemicals. This condition is satisfied when the price markup in the chemical industries equals the marginal environmental damages caused by chemicals. Our estimates of price markup for nitrogen, phosphate, and pesticides industries indicate that the welfare loss caused by market power is exactly offset by environmental benefits if the marginal pollution costs are, respectively, eight, nine, and twenty-two cents for each dollar's worth of these chemicals.

Keywords: agricultural chemicals; externality costs; market power; social welfare; L120; Q120; Q200

Journal Article.  0 words. 

Subjects: Renewable Resources and Conservation ; Agricultural Economics ; Market Structure, Firm Strategy, and Market Performance

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