Environmental Externalities and the Optimal Level of Market Power

9 Pages Posted: 31 Mar 2020

See all articles by Munisamy Gopinath

Munisamy Gopinath

Oregon State University - Department of Applied Economics

Junjie Wu

Oregon State University - Department of Applied Economics

Date Written: November 1999

Abstract

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

Suggested Citation

Gopinath, Munisamy and Wu, Junjie, Environmental Externalities and the Optimal Level of Market Power (November 1999). American Journal of Agricultural Economics, Vol. 81, Issue 4, pp. 825-833, 1999, Available at SSRN: https://ssrn.com/abstract=3563163 or http://dx.doi.org/10.2307/1244327

Munisamy Gopinath (Contact Author)

Oregon State University - Department of Applied Economics ( email )

213 Ballard Extension Hall
Corvallis, OR 97331-4501
United States
541-737-1402 (Phone)
541-737-2563 (Fax)

Junjie Wu

Oregon State University - Department of Applied Economics ( email )

213 Ballard Extension Hall
Rm #200A
Corvallis, OR 97331-4501
United States
541-737-3060 (Phone)
541-737-2563 (Fax)

HOME PAGE: http://osu.orst.edu/Dept/ag_resrc_econ/faculty2/wu

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