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Designing Organizations for Trading Pollution Rights

Author

Listed:
  • John Ledyard

    (Caltech)

  • Kristin Szakaly-Moore

    (Caltech)

Abstract

Regulators and academicians have recently become interested in using a marketable permits program as a new way to control aggregate pollution emissions. Our research focuses on choosing a permit trading mechanism that is both economically efficient and politically viable. We consider an organized trading process and a revenue neutral auction, both of which involve an initial allocation of permits based on past history. Each is tested in a non-monopolistic and monopolistic environment to determine which mechanism performs best. The results suggest that, overall, the organized trading process outperforms the revenue neutral auction.

Suggested Citation

  • John Ledyard & Kristin Szakaly-Moore, 1993. "Designing Organizations for Trading Pollution Rights," Experimental 9307001, University Library of Munich, Germany, revised 28 Jul 1993.
    • Handle: RePEc:wpa:wuwpex:9307001
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    References listed on IDEAS

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    1. Myerson, Roger B. & Satterthwaite, Mark A., 1983. "Efficient mechanisms for bilateral trading," Journal of Economic Theory, Elsevier, vol. 29(2), pages 265-281, April.
    2. Gresik, Thomas A. & Satterthwaite, Mark A., 1989. "The rate at which a simple market converges to efficiency as the number of traders increases: An asymptotic result for optimal trading mechanisms," Journal of Economic Theory, Elsevier, vol. 48(1), pages 304-332, June.
    3. Plott, Charles R, 1983. "Externalities and Corrective Policies in Experimental Markets," Economic Journal, Royal Economic Society, vol. 93(369), pages 106-127, March.
    4. Hahn, Robert W, 1989. "Economic Prescriptions for Environmental Problems: How the Patient Followed the Doctor's Orders," Journal of Economic Perspectives, American Economic Association, vol. 3(2), pages 95-114, Spring.
    Full references (including those not matched with items on IDEAS)

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    JEL classification:

    • C9 - Mathematical and Quantitative Methods - - Design of Experiments

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