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An Efficient Mechanism to Control Correlated Externalities: Redistributive Transfers and the Coexistence of Regional and Global Pollution Permit Markets

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Author Info
Arthur Caplan
Emilson Silva

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Abstract

We compare tradable permit markets and emission taxes as self-enforcing mechanisms to control correlated externality problems. By “correlated” we mean multiple pollutants that are jointly produced by a single source but which simultaneously cause differentiated regional and global externalities (e.g., smog and global warming). By “self-enforcing” we mean mechanisms that account for the endogeneity that exists between competing jurisdictions in the setting of environmental policy within a federation of regions. We find that joint domestic and international permit markets are Pareto efficient, while joint emissions taxes are not.

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File URL: ftp://repec.bus.usu.edu/RePEc/usu/pdf/ERI2002-23.pdf
File Format: application/pdf
File Function: First version, 2002
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Publisher Info
Paper provided by Utah State University, Department of Economics in its series Working Papers with number 2002-23.

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Length: 35 pages
Date of creation: Dec 2002
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Handle: RePEc:usu:wpaper:2002-23

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Find related papers by JEL classification:
C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
D62 - Microeconomics - - Welfare Economics - - - Externalities
D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy-Making and Implementation
H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy

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  1. Arthur Caplan, 2006. "A Comparison of Emission Taxes and Permit Markets for Controlling Correlated Externalities," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 34(4), pages 471-492, August. [Downloadable!] (restricted)
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This page was last updated on 2009-12-5.

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