Bankruptcy Risk and the Performance of Tradable Permit Markets
AbstractWe study the impact of bankruptcy risk on markets for tradable environmental and natural resource permits. We find that firms that risk bankruptcy demand more permits than if they were financially secure. Consequently, bankruptcy risk in a competitive market for tradable property rights causes an inefficient distribution of individual choices among regulated firms. Moreover, the equilibrium distribution of permits is not independent of the initial distribution of permits. In fact, the inefficiency that is associated with bankruptcy risk is mitigated if financially insecure firms are given a larger share of the initial allocation of permits.
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Bibliographic InfoPaper provided by University of Massachusetts Amherst, Department of Resource Economics in its series Working Papers with number 2007-9.
Length: 20 pages
Date of creation: Sep 2007
Date of revision:
bankruptcy; tradable permits; permit markets;
Other versions of this item:
- John Stranlund & Wei Zhang, 2008. "Bankruptcy risk and the performance of tradable permit markets," Economics Bulletin, AccessEcon, vol. 17(9), pages 1-9.
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
- Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
- Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-09-24 (All new papers)
- NEP-ENE-2007-09-24 (Energy Economics)
- NEP-ENV-2007-09-24 (Environmental Economics)
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.:
- Montgomery, W. David, 1972. "Markets in licenses and efficient pollution control programs," Journal of Economic Theory, Elsevier, vol. 5(3), pages 395-418, December.
- Damania, Richard & Bulte, Erwin H., 2006. "Renewable resource regulation and uncertain prices: The role of financial structure and bankruptcy," Resource and Energy Economics, Elsevier, vol. 28(1), pages 41-53, January.
- Damania, R., 2000. "Financial structure and the effectiveness of pollution control in an oligopolistic industry," Resource and Energy Economics, Elsevier, vol. 22(1), pages 21-36, January.
- Stavins Robert N., 1995. "Transaction Costs and Tradeable Permits," Journal of Environmental Economics and Management, Elsevier, vol. 29(2), pages 133-148, September.
- Yossef Spiegel & Daniel F. Spulber, 1994. "The Capital Structure of a Regulated Firm," RAND Journal of Economics, The RAND Corporation, vol. 25(3), pages 424-440, Autumn.
- Tom Tietenberg, 2003. "The Tradable-Permits Approach to Protecting the Commons: Lessons for Climate Change," Oxford Review of Economic Policy, Oxford University Press, vol. 19(3), pages 400-419.
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