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Tradable Permits with Incomplete Monitoring: Evidence from Santiago’s Particulate Permits Program

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  • Montero, J-P.

Abstract

I explore the advantages of tradable emission permits over uniform emission standards when the regulator has incomplete information on firms’ emissions and costs of production and abatement (e.g., air pollution in large cities). Because the regulator only observes each firm’s abatement technology but neither its emissions nor its output, there are cases in which standards can lead to lower emissions and, hence, welfare dominate permits. I then empirically examine these issues using evidence from a particulate permits market in Santiago, Chile.

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Bibliographic Info

Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0457.

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Length: 32
Date of creation: Oct 2004
Date of revision:
Handle: RePEc:cam:camdae:0457

Note: CMI, IO
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Web page: http://www.econ.cam.ac.uk/index.htm

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Keywords: asymmetric information; imperfect monitoring; pollution markets; permits;

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  1. Juan-Pablo Montero, 2004. "Pollution markets with imperfectly observed emissions," Working Papers 0414, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
  2. Stavins, Robert, 2000. "Experience with Market-Based Environmental Policy Instruments," Working Paper Series rwp00-004, Harvard University, John F. Kennedy School of Government.
  3. Weitzman, Martin L, 1974. "Prices vs. Quantities," Review of Economic Studies, Wiley Blackwell, vol. 41(4), pages 477-91, October.
  4. Ellerman,A. Denny & Joskow,Paul L. & Schmalensee,Richard & Montero,Juan-Pablo & Bailey,Elizabeth M., 2000. "Markets for Clean Air," Cambridge Books, Cambridge University Press, number 9780521660839, October.
    • Ellerman,A. Denny & Joskow,Paul L. & Schmalensee,Richard & Montero,Juan-Pablo & Bailey,Elizabeth M., 2005. "Markets for Clean Air," Cambridge Books, Cambridge University Press, number 9780521023894, October.
  5. Montero, Juan-Pablo & Sanchez, Jose Miguel & Katz, Ricardo, 2002. "A Market-Based Environmental Policy Experiment in Chile," Journal of Law and Economics, University of Chicago Press, vol. 45(1), pages 267-87, April.
  6. Cremer, Helmuth & Gahvari, Firouz, 2002. "Imperfect observability of emissions and second-best emission and output taxes," Journal of Public Economics, Elsevier, vol. 85(3), pages 385-407, September.
  7. Segerson, Kathleen, 1988. "Uncertainty and incentives for nonpoint pollution control," Journal of Environmental Economics and Management, Elsevier, vol. 15(1), pages 87-98, March.
  8. Don Fullerton & Sarah West, 1999. "Can Taxes on Cars and on Gasoline Mimic an Unavailable Tax on Emissions?," NBER Working Papers 7059, National Bureau of Economic Research, Inc.
  9. Richard Schmalensee & Paul L. Joskow & A. Denny Ellerman & Juan Pablo Montero & Elizabeth M. Bailey, 1998. "An Interim Evaluation of Sulfur Dioxide Emissions Trading," Journal of Economic Perspectives, American Economic Association, vol. 12(3), pages 53-68, Summer.
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