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Walrasian prices in a market with consumption rights

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Author Info

  • Carlos Hervés-Beloso
  • Francisco Martínez
  • Jorge Rivera

Abstract

In this paper we consider an exchange economy where there is an external restriction for the consumption of goods. This restriction is defined by both a cap on consumption of certain commodities and the requirement of an amount of rights for the consumption of these commodities. The caps for consumption are imposed exogenously due to the negative effects that the consumption may produce. The consumption rights are distributed among the agents. This fact leads to the possibility of establishing licence or consumption rights markets. These consumption rights do not participate in agents' preferences, however the individual's budgetary constraint may be modified, leading to a reassignment of resources. The aim of this paper is to show the existence of a Walrasian equilibrium price system linking tradable rights prices with commodity prices.

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Bibliographic Info

Paper provided by University of Chile, Department of Economics in its series Working Papers with number wp317.

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Length: 17 pages
Date of creation: Jul 2010
Date of revision:
Handle: RePEc:udc:wpaper:wp317

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Web page: http://www.econ.uchile.cl/
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Keywords: competitive equilibrium; quotas; consumption rights; cap-and-trade program.;

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