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Environmental Externalities and the Optimal Level of Market Power
Author(s) -
Gopinath Munisamy,
Wu JunJie
Publication year - 1999
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.2307/1244327
Subject(s) - externality , economics , liberian dollar , market power , damages , marginal cost , agriculture , deadweight loss , microeconomics , natural resource economics , welfare , offset (computer science) , pollution , environmental pollution , environmental protection , environmental science , market economy , ecology , programming language , finance , political science , computer science , law , biology , monopoly
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.