The Effects of Rent Seeking over Tradable Pollution Permits
AbstractThe establishment of a tradable permit market requires the regulator to select a level of aggregate emissions and then distribute the associated permits to specific groups. Both these decisions create opportunities for rent seeking. In this paper, we use a contest model to analyse the incentives to rent seek for pollution permits and to analyse the consequences for social welfare. We find differences in firms' rent-seeking choices compared to a conventional rent-seeking contest. We see that a fundamental aspect of firms' incentives to rent seek depends on the market value of the permits, that is, the value of the ex post reallocated rents. This impact depends on the responsiveness of the regulator to aggregate rent-seeking effort. The responsiveness, in some cases, may improve welfare by reducing the per-unit value of permits, which may lower the rent-seeking effort more than it increases the damages experienced from the additional emissions.
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Bibliographic InfoArticle provided by De Gruyter in its journal The B.E. Journal of Economic Analysis & Policy.
Volume (Year): 10 (2010)
Issue (Month): 1 (July)
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Other versions of this item:
- Hanley, Nicholas & Mackenzie, Ian A, 2009. "The effects of rent seeking over tradable pollution permits," Stirling Economics Discussion Papers 2009-12, University of Stirling, Division of Economics.
- Hanley, Nicholas & Mackenzie, Ian A, 2010. "The effects of rent seeking over tradable pollution permits," Stirling Economics Discussion Papers 2010-02, University of Stirling, Division of Economics.
- Nick Hanley & Ian A. MacKenzie, 2009. "The effects of rent seeking over tradable pollution permits," CER-ETH Economics working paper series 09/112, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
- D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
- D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy-Making and Implementation
- Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
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