Optimal production planning and cap setting under cap-and-trade regulation |
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Authors: | Ping He Guowei Dou Wei Zhang |
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Institution: | 1.School of Business Administration,South China University of Technology,Guangzhou,People’s Republic of China;2.Research Institute of Business Analytics and Supply Chain Management, Postdoctoral Station of Theoretical Economics, College of Management,Shenzhen University,Shenzhen,People’s Republic of China;3.School of Management,Zhejiang University,Hangzhou,People’s Republic of China |
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Abstract: | This paper investigates the optimal production decisions of a self-pricing manufacturer and the optimal cap-setting decisions of a regulator under the cap-and-trade regulation. The objectives of the manufacturer and the regulator are to maximize profit and to maximize social welfare, respectively. We first derive the optimal production decisions and the corresponding total emissions of the manufacturer, with given parameters of the cap-and-trade regulation. Based on these results, we then solve the optimal cap-setting problem of the regulator. Furthermore, through sensitive analyses, we show that as the emissions intensity (i.e., the emissions generated from one unit of product) increases, both the optimal total emissions and the optimal cap first increase and then decrease. |
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