The effects of rent seeking over tradable pollution permits
AbstractThe establishment of a tradable permit market requires the regulator to select a level of aggregate emissions and then distribute the associated permits (rent) to specific groups. In most circumstances, these decisions are often politically contentious and frequently influenced by rent seeking behaviour. In this paper, we use a contest model to analyse the effects of rent seeking effort when permits are freely distributed (grandfathered). Rent seeking behaviour can influence both the share of permits which an individual firm receives and also the total supply of permits. This latter impact depends on the responsiveness of the regulator to aggregate rent seeking effort. Using a three-stage game, we show that rent seeking can influence both the distribution of rents and the ex post value of these rents, whilst welfare usually decreases in the responsiveness of the regulator.
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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 09/112.
Length: 36 pages
Date of creation: Jul 2009
Date of revision:
tradable permit market; rent seeking; initial allocation;
Other versions of this item:
- Hanley Nick & MacKenzie Ian A, 2010. "The Effects of Rent Seeking over Tradable Pollution Permits," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 10(1), pages 1-26, July.
- Hanley, Nicholas & Mackenzie, Ian A, 2009. "The effects of rent seeking over tradable pollution permits," Stirling Economics Discussion Papers 2009-12, University of Stirling, Division of Economics.
- Hanley, Nicholas & Mackenzie, Ian A, 2010. "The effects of rent seeking over tradable pollution permits," Stirling Economics Discussion Papers 2010-02, University of Stirling, Division of Economics.
- D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
- D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
- Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-10-03 (All new papers)
- NEP-ENE-2009-10-03 (Energy Economics)
- NEP-ENV-2009-10-03 (Environmental Economics)
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