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Tradeable permits, missing markets, and technology

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Author Info
R. Devlin
R. Grafton

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Abstract

This paper examines the effects of missing markets, heterogeneous pollutants, and the pollution technology of firms on the efficacy of transferable pollution permits. Under the assumption of perfect competition in all markets, we show that if firms can substitute among pollutants, then setting the “optimal” number of permits for only one pollutant will not, in general, lead to an efficient outcome. The degree of the inefficiency will depend on the information set available to the regulator and the substitutability among pollutants by firms. When establishing transferable pollution rights regulators should, therefore, consider the technology of firms. If firms discharge pollutants in the same fixed proportions, then the regulator need only set a market for one of the pollutants to ensure an efficient outcome. Where firms can substitute among pollutants, however, establishing a market for only one pollutant provides an incentive for firms to substitute to unregulated ones. This is an important policy issue as substitutability among pollutants within and across production processes may dampen the dynamic advantages of a tradeable permit policy. Copyright Kluwer Academic Publishers 1994

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Publisher Info
Article provided by European Association of Environmental and Resource Economists in its journal Environmental & Resource Economics.

Volume (Year): 4 (1994)
Issue (Month): 2 (April)
Pages: 171-186
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Handle: RePEc:kap:enreec:v:4:y:1994:i:2:p:171-186

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Related research
Keywords: Pollution; permit markets; technology; Jel Classification. Q38;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Cropper, Maureen L & Oates, Wallace E, 1992. "Environmental Economics: A Survey," Journal of Economic Literature, American Economic Association, vol. 30(2), pages 675-740, June. [Downloadable!] (restricted)
  2. Atkinson, Scott & Tietenberg, Tom, 1991. "Market failure in incentive-based regulation: The case of emissions trading," Journal of Environmental Economics and Management, Elsevier, vol. 21(1), pages 17-31, July. [Downloadable!] (restricted)
  3. Krupnick, Alan J. & Oates, Wallace E. & Van De Verg, Eric, 1983. "On marketable air-pollution permits: The case for a system of pollution offsets," Journal of Environmental Economics and Management, Elsevier, vol. 10(3), pages 233-247, September. [Downloadable!] (restricted)
  4. Robert E. Kohn, 1986. "The Rate of Emission and the Optimal Scale of the Polluting Firm," Canadian Journal of Economics, Canadian Economics Association, vol. 19(3), pages 574-81, August. [Downloadable!] (restricted)
  5. Noll, Roger G, 1982. "Implementing Marketable Emissions Permits," American Economic Review, American Economic Association, vol. 72(2), pages 120-24, May. [Downloadable!] (restricted)
  6. Farber, Stephen C & Martin, Robert E, 1986. "Market Structure and Pollution Control under Imperfect Surveillance," Journal of Industrial Economics, Blackwell Publishing, vol. 35(2), pages 147-60, December. [Downloadable!] (restricted)
  7. Marin, Alan, 1991. "Firm incentives to promote technological change in pollution control: Comment," Journal of Environmental Economics and Management, Elsevier, vol. 21(3), pages 297-300, November. [Downloadable!] (restricted)
  8. Tietenberg, T H, 1990. "Economic Instruments for Environmental Regulation," Oxford Review of Economic Policy, Oxford University Press, vol. 6(1), pages 17-33, Spring.
  9. Malueg, David A., 1990. "Welfare consequences of emission credit trading programs," Journal of Environmental Economics and Management, Elsevier, vol. 18(1), pages 66-77, January. [Downloadable!] (restricted)
  10. Hahn, Robert W, 1984. "Market Power and Transferable Property Rights," The Quarterly Journal of Economics, MIT Press, vol. 99(4), pages 753-65, November. [Downloadable!] (restricted)
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  11. Scott E. Atkinson & T. H. Tietenberg, 1987. "Economic Implications of Emissions Trading Rules for Local and Regional Pollutants," Canadian Journal of Economics, Canadian Economics Association, vol. 20(2), pages 370-86, May. [Downloadable!] (restricted)
  12. Dale Squires, 1987. "Public Regulation and the Structure of Production in Multiproduct Industries: An Application to the New England Otter Trawl Industry," RAND Journal of Economics, The RAND Corporation, vol. 18(2), pages 232-247, Summer. [Downloadable!] (restricted)
  13. McGartland, Albert M. & Oates, Wallace E., 1985. "Marketable permits for the prevention of environmental deterioration," Journal of Environmental Economics and Management, Elsevier, vol. 12(3), pages 207-228, September. [Downloadable!] (restricted)
  14. Milliman, Scott R. & Prince, Raymond, 1989. "Firm incentives to promote technological change in pollution control," Journal of Environmental Economics and Management, Elsevier, vol. 17(3), pages 247-265, November. [Downloadable!] (restricted)
  15. Mendelsohn, Robert, 1986. "Regulating heterogeneous emissions," Journal of Environmental Economics and Management, Elsevier, vol. 13(4), pages 301-312, December. [Downloadable!] (restricted)
  16. Atkinson, Scott E. & Tietenberg, T. H., 1982. "The empirical properties of two classes of designs for transferable discharge permit markets," Journal of Environmental Economics and Management, Elsevier, vol. 9(2), pages 101-121, June. [Downloadable!] (restricted)
  17. Bartel, Ann P & Thomas, Lacy Glenn, 1987. "Predation through Regulation: The Wage and Profit Effects of the Occupational Safety and Health Administration and the Environmental Protection Agency," Journal of Law & Economics, University of Chicago Press, vol. 30(2), pages 239-64, October.
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Stefan Baumgärtner & Frank Jöst, 2000. "Joint Production, Externalities, and the Regulation of Production Networks," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 16(2), pages 229-251, June. [Downloadable!] (restricted)
  2. Armin Schmutzler, 1996. "Pollution control with imperfectly observable emissions," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 7(3), pages 251-262, April. [Downloadable!] (restricted)
  3. Simon Niemeyer, 1998. "Consumer-based carbon reduction incentives," Working Papers in Ecological Economics 9805, Australian National University, Centre for Resource and Environmental Studies, Ecological Economics Program. [Downloadable!]
  4. Don Fullerton & Inkee Hong & Gilbert E. Metcalf, 1999. "A Tax on Output of the Polluting Industry is Not a Tax on Pollution: The Importance of Hitting the Target," Discussion Papers Series, Department of Economics, Tufts University 9908, Department of Economics, Tufts University. [Downloadable!]
    Other versions:
  5. Grischa Perino, 2006. "The Merits of New Pollutants and How to Get Them When Patents Are Granted," Working Papers 0426, University of Heidelberg, Department of Economics, revised Jul 2006. [Downloadable!]
    Other versions:
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