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Should Consumers Be Priced Out of Pollution-Permit Markets?

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  • Stefani C. Smith
  • Andrew J. Yates

Abstract

The authors present a simple diagrammatic exposition of a pollution-permit market in which both firms that generate pollution and consumers who are harmed by pollution are allowed to purchase permits at a single market price. They show that the market equilibrium is efficient if and only if the endowment of permits is equal to the efficient level of pollution. Furthermore, if consumers actually participate in the market, then the equilibrium is not efficient. Welfare can be improved by decreasing the endowment of permits and thereby pricing consumers out of the market.

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File URL: http://hdl.handle.net/10.1080/00220480309595211
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Bibliographic Info

Article provided by Taylor and Francis Journals in its journal The Journal of Economic Education.

Volume (Year): 34 (2003)
Issue (Month): 2 (January)
Pages: 181-189

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Handle: RePEc:taf:jeduce:v:34:y:2003:i:2:p:181-189

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Cited by:
  1. Antoine Mandel, 2007. "Welfare improvement properties of an allowance market in a production economy," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00155803, HAL.

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