Optimal Two‐Part Pricing in a Carbon Offset Market: A Comparison of Organizational Types

Abstract

This article examines the optimal two‐part pricing by an intermediary in a carbon offset market. In addition to creating a framework for analyzing carbon offset pricing, this article makes two contributions to the theoretical literature. First, we provide an in‐depth examination of the roles played by the upstream inframarginal supply and participation elasticities and the downstream demand elasticity in determining the optimal two‐part pricing strategy. Second, we compare the pricing decisions of three different organizational types: a for‐profit firm, a public agency, and a producer association. The producer association problem, which has received little attention in the literature, yields counterintuitive results because a producer association must simultaneously reduce output and distribute all profits back to its members.