Emission trading and labor market rigidity inan international duopoly model

Emission trading systems have been recently proposed in diffrerent regions to reduce polluting emissions (e.g. in the European Union for carbon dioxide). One of the objectives of these systems is to encourage firms to adopt advanced abatement technologies. However permits create an incentive to reduce production, which may be seen as negative by policy makers. Combining the emission trading systemwith a more rigid labour market, we show conditions under which it is possible to avoid this impact keeping the incentives to improve abatement technologies. The analysis is done for oligopolistic firms engagedin international rivalry.emission trading, labor market, international rivalry