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Transactions Costs in Tradable Permit Markets: An Experimental Study of Pollution Market Designs

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  • Cason, Timothy N
  • Gangadharan, Lata

Abstract

Regulators' choices of market rules and permit allocations influence tradable emission permit programs. This paper uses laboratory experiments to study how transaction costs interact with permit allocations to determine the cost-effectiveness of emissions abatement. With positive transaction costs, in theory the initial distribution of permits can affect both abatement costs and equity. Consistent with theory, we find that with declining marginal transaction costs prices deviate less from the efficient level if the "misallocation" of the initial permit distribution is greater, and the deviation from efficient prices does not vary with the initial permit endowment when marginal transaction costs are constant. Copyright 2003 by Kluwer Academic Publishers

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Bibliographic Info

Article provided by Springer in its journal Journal of Regulatory Economics.

Volume (Year): 23 (2003)
Issue (Month): 2 (March)
Pages: 145-65

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Handle: RePEc:kap:regeco:v:23:y:2003:i:2:p:145-65

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Web page: http://www.springerlink.com/link.asp?id=100298

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Cited by:
  1. Koesler, Simon & Achtnicht, Martin & Köhler, Jonathan, 2012. "Capped steam ahead: A case study among ship operators on a maritime ETS," ZEW Discussion Papers 12-044, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  2. Jaraite, Jurate & Convery, Frank J. & Di Maria, Corrado, 2009. "Transaction costs of firms in the EU ETS," Open Access publications from University College Dublin urn:hdl:10197/2077, University College Dublin.
  3. Hahn, Robert W. & Stavins, Robert N., 2010. "The Effect of Allowance Allocations on Cap-and-Trade System Performance," Working paper 47, Regulation2point0.
  4. Ghosh, Gaurav & Kwasnica, Anthony & Shortle, James, 2010. "A Laboratory Experiment to Compare Two Market Institutions for Emissions Trading," FCN Working Papers 18/2010, E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN).
  5. Olivier Rousse & Benoît Sévi, 2005. "Behavioral Heterogeneity in the US Sulfur Dioxide Emissions Allowance Trading Program," ERSA conference papers ersa05p550, European Regional Science Association.
  6. Jaraite, Jurate & Kažukauskas, Andrius, 2012. "Firm Trading Behaviour and Transaction Costs in the European Union’s Emission Trading System: An Empirical Assessment," CERE Working Papers 2012:9, CERE - the Center for Environmental and Resource Economics.
  7. Betz, Regina, 2006. "Emissions trading to combat climate change: The impact of scheme design on transaction costs," 2005 Conference (49th), February 9-11, 2005, Coff's Harbour, Australia 139304, Australian Agricultural and Resource Economics Society.
  8. Cason, Timothy N. & Gangadharan, Lata, 2011. "Price discovery and intermediation in linked emissions trading markets: A laboratory study," Ecological Economics, Elsevier, vol. 70(7), pages 1424-1433, May.
  9. Marianne LEFEBVRE & Lata GANGADHARAN & Sophie THOYER, 2011. "Do Security-differentiated Water Rights Improve Efficiency?," Working Papers 11-14, LAMETA, Universtiy of Montpellier, revised Jun 2012.
  10. Norgaard, Richard B. & Jin, Ling, 2008. "Trade and the governance of ecosystem services," Ecological Economics, Elsevier, vol. 66(4), pages 638-652, July.
  11. repec:mop:credwp:06.02.63 is not listed on IDEAS
  12. Anabela Botelho & Eduarda Fernandes & Ligia Costa Pinto, 2010. "An experimental analysis of grandfathering vs dynamic auctioning in the EU ETS," NIMA Working Papers 39, Núcleo de Investigação em Microeconomia Aplicada (NIMA), Universidade do Minho.
  13. Donald Larson & Gunnar Breustedt, 2009. "Will Markets Direct Investments Under the Kyoto Protocol? Lessons from the Activities Implemented Jointly Pilots," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 43(3), pages 433-456, July.
  14. Nguyen, Nga & Shortle, James S., 2006. "Transactions Costs and Point-Nonpoint Source Water Pollution Trading," 2006 Annual meeting, July 23-26, Long Beach, CA 21096, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  15. Ando, Amy & Harrington, Winston & McConnell, Virginia D., 2007. "Fees in an Imperfect World: An Application to Motor Vehicle Emissions," Discussion Papers dp-07-34, Resources For the Future.
  16. Larson, Donald F. & Breustedt, Gunnar, 2007. "Will markets direct investments under the Kyoto Protocol ?," Policy Research Working Paper Series 4131, The World Bank.
  17. Heindl, Peter, 2012. "Transaction costs and tradable permits: Empirical evidence from the EU emissions trading scheme," ZEW Discussion Papers 12-021, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.

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