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A Pricing Mechanism for CO2 Emissions that Incorporates Future Revisions of Estimates of the Cost of Today?s Emissions

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  • T. Nicolaus Tideman
  • Florenz Plassmann
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    Abstract

    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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    File URL: ftp://repec.econ.vt.edu/Papers/Tideman/PricingCO2.pdf
    File Function: First version, 2007
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    Bibliographic Info

    Paper provided by Virginia Polytechnic Institute and State University, Department of Economics in its series Working Papers with number e07-9.

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    Length: 12 pages
    Date of creation: 2007
    Date of revision:
    Handle: RePEc:vpi:wpaper:e07-9

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    Keywords: Environmental regulation; Climate change; Prediction market;

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    1. John Pezzey, 2003. "Emission Taxes and Tradeable Permits A Comparison of Views on Long-Run Efficiency," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 26(2), pages 329-342, October.
    2. Wolfers, Justin & Zitzewitz, Eric, 2004. "Prediction Markets," Research Papers 1854, Stanford University, Graduate School of Business.
    3. Pizer, William A., 2002. "Combining price and quantity controls to mitigate global climate change," Journal of Public Economics, Elsevier, vol. 85(3), pages 409-434, September.
    4. Paul W. Rhode & Koleman S. Strumpf, 2004. "Historical Presidential Betting Markets," Journal of Economic Perspectives, American Economic Association, vol. 18(2), pages 127-141, Spring.
    5. repec:reg:rpubli:259 is not listed on IDEAS
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