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An Economic Analysis Of The Emission Reduction Market System In Chicago

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  • Onal, Hayri
  • Liao, Chao-Ning

Abstract

A mixed-integer programming model is used to investigate economic impacts of the permit trading market in Chicago and determine the equilibrium price. Unlike previous studies, the model determines unit pollution abatement cost endogenously depending on firms' technology adoption decisions. A sequential trading process is used to simulate firms' behavior under incomplete information. The results show that average shadow prices, a counterpart of conventional shadow prices in discrete problems, slightly underestimate the equilibrium prices. Moreover, the model predicts an over-supply of permits for the first two trading seasons.

Suggested Citation

  • Onal, Hayri & Liao, Chao-Ning, 2002. "An Economic Analysis Of The Emission Reduction Market System In Chicago," 2002 Annual meeting, July 28-31, Long Beach, CA 19717, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    • Handle: RePEc:ags:aaea02:19717
    DOI: 10.22004/ag.econ.19717
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    1. Maloney, Michael T. & Yandle, Bruce, 1984. "Estimation of the cost of air pollution control regulation," Journal of Environmental Economics and Management, Elsevier, vol. 11(3), pages 244-263, September.
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    4. Scott Lee Johnson & David M. Pekelney, 1996. "Economic Assessment of the Regional Clean Air Incentives Market: A New Emissions Trading Program for Los Angeles," Land Economics, University of Wisconsin Press, vol. 72(3), pages 277-297.
    5. Kim, Sehun & Cho, Seong-cheol, 1988. "A shadow price in integer programming for management decision," European Journal of Operational Research, Elsevier, vol. 37(3), pages 328-335, December.
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    Environmental Economics and Policy;

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