Double Dipping in Environmental Markets
AbstractThere is an increasing tendency to use markets to induce the provision of environmental services. As such markets increase in scope, potential market participants might sell multiple environmental services. The question we consider here is whether participants in such markets should be allowed to sell credits in more than one market simultaneously. Some have argued in favor of such “double dipping,” because it would make the provision of environmental services more profitable. In practice, however, most programs do not allow doubledipping. We show that if the optimal level of pollution abatement is sought, then double-dipping maximizes societal net benefits. However, if pollution policies are set in a piecemeal fashion, then the caps for each market are unlikely to be optimal and, in this second-best setting, a policy prohibiting double dipping can lead to greater social net benefits. We explore conditions under which a singlemarket policy is preferred, or equivalently, where piecemeal policies are likely to yield particularly inefficient outcomes.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 26185.
Date of creation: Apr 2010
Date of revision:
Environmental policy; tradable discharge permits; numerical methods; stacking;
Other versions of this item:
- H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
- Q0 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General
- 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-2010-11-06 (All new papers)
- NEP-ENV-2010-11-06 (Environmental Economics)
- NEP-REG-2010-11-06 (Regulation)
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