Kenichi Akao () (School of Social Sciences, Waseda University, and Institute of Economic Research, Kyoto University) Shunsuke Managi () (Faculty of Business Administration, Yokohama National University)
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The creation of an artificial market through a tradable permit system as a remedy against market failure is gaining popularity among analysts and policymakers. We show that in an intertemporal competitive economy, a tradable permit system may not achieve efficiency without setting appropriate permit interest rates (rewards for holding permits), and to find them, we must know in advance the path of efficient permit prices, which is difficult or impossible to obtain. We deal with this problem in two ways. First, we seek a special case in which the permit interest rates are given by a simple rule. Second, we propose a mechanism by which the permit interest rates are generated endogenously. The determinacy of an equilibrium under a tradable permit system is also examined.
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Paper provided by Kyoto University, Institute of Economic Research in its series KIER Working Papers with number
658.
Find related papers by JEL classification: H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies K32 - Law and Economics - - Other Substantive Areas of Law - - - Environmental, Health, and Safety Law Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
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Stokey, Nancy L, 1998.
"Are There Limits to Growth?,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(1), pages 1-31, February.