The efficiency of mechanisms to control CO2 emissions is limited by disagreement about the harm from these emissions. Thus existing emission control mechanisms require negotiated compromise regarding either the efficient price or the level of emissions to be tolerated. As an alternative to conventional mechanisms, we offer a mechanism in which today?s price of emissions is determined by a market-based estimate of future beliefs about the cost of emissions. This reduces the uncertainty about the right price for emissions and makes it likely that emitters will base their emission decisions on more accurate estimates of the harm they cause.
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Paper provided by Virginia Polytechnic Institute and State University, Department of Economics in its series Working Papers with number
e07-9.
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Justin Wolfers & Eric Zitzewitz, 2004.
"Prediction Markets,"
NBER Working Papers
10504, National Bureau of Economic Research, Inc.
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Other versions:
Wolfers, Justin & Zitzewitz, Eric, 2004.
"Prediction Markets,"
Research Papers
1854, Stanford University, Graduate School of Business.
[Downloadable!]