On the Sequential Choice of Tradable Permit Allocations
AbstractThis paper investigates the sequential announcement of domestic emissions caps by regulators in a federal or international-based tradable pollution permit market for a transboundary pollutant. A leader-follower framework is used to analyse the consequences of regulators sequentially announcing domestic allocation caps. We find the sequential choice of domestic allocation caps is sub-optimal and depends on the follower's reaction to the leader's choice. Furthermore, the marginal damage and the degree to which allocations are substitutes or complements affects whether the leader changes from being a net permit buyer (seller) of permits to a seller (buyer).
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Bibliographic InfoPaper provided by CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich in its series CER-ETH Economics working paper series with number 08/83.
Length: 41 pages
Date of creation: Mar 2008
Date of revision:
Initial allocation; international tradable permit market; leader-follower;
Find related papers by JEL classification:
- D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-03-08 (All new papers)
- NEP-DCM-2008-03-08 (Discrete Choice Models)
- NEP-ENE-2008-03-08 (Energy Economics)
- NEP-ENV-2008-03-08 (Environmental Economics)
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