Pooling of Uncertainty: Enforcing Tradable Permits Regulation when Emissions are Stochastic
AbstractAn under-appreciated advantage of tradable permits regulation is its ability to create better decision-making when emissions are stochastic. In general, the distribution of stochastic actual emissions around intended emissions results in over- or under-compliance. Permit tradability reduces the extent to which actual aggregate emissions deviate from regulatory targets, by giving firms an additional mechanism for responding to uncertainty. We construct a two period model of permit regulation with ex post enforcement to demonstrate how the permit market distributes uncertainty, and to illustrate the importance of expectations toward permit market outcomes. Copyright Kluwer Academic Publishers 2004
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Bibliographic InfoArticle provided by European Association of Environmental and Resource Economists in its journal Environmental & Resource Economics.
Volume (Year): 29 (2004)
Issue (Month): 4 (December)
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Web page: http://www.springerlink.com/link.asp?id=100263
enforcement; environmental regulation; stochastic emissions; tradable permits; uncertainty;
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