The optimal size of a permit market

Krysiak, Frank C. and Schweitzer, Patrick. (2010) The optimal size of a permit market. Journal of environmental economics and management, Vol. 60. pp. 133-143.

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Official URL: http://edoc.unibas.ch/dok/A5840234

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Regulating the emissions of non-uniformly mixed pollutants with a permit market carries the risk of hot spot formation, which can be reduced by dividing the regulation area into trading zones. The trading zone approach has been extensively discussed for the full-information case. We consider incomplete information concerning the emitters’ abatement costs, their locations, and pollution dispersion. We derive the optimal number of trading zones and the optimal number of permits per zone and analyze under which conditions a system of independent trading zones is superior to other policy measures. Our results show that appropriately sized permit markets are well-suited to regulating non-uniformly mixed pollutants under informational constraints if firms are not too heterogeneous. Only for substantial heterogeneity and a highly non-linear damage function can it be optimal to use command-and-control strategies.
Faculties and Departments:06 Faculty of Business and Economics > Departement Wirtschaftswissenschaften > Professuren Wirtschaftswissenschaften > Umweltökonomie (Krysiak)
UniBasel Contributors:Krysiak, Frank Christian
Item Type:Article, refereed
Article Subtype:Research Article
Publisher:Academic Press
Note:Publication type according to Uni Basel Research Database: Journal article
Last Modified:14 Sep 2012 07:21
Deposited On:14 Sep 2012 07:10

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