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Pollution Permit Market: Using Incentive Contracts to Reduce Dominant Firm Inefficiencies

Author

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  • Sonia Schwartz

    (GREQAM, Aix-Marseille University, France)

Abstract

Incentive contracts can be proposed to a dominant firm that has been excluded from the pollution permit market. We determine the optimal characteristics of a contract considering the trade-off between market efficiency and the cost of public funds. We show that under incomplete information the firm always buys fewer quotas than under complete information. We conclude this study by giving a concrete rule to implement such a contract.

Suggested Citation

  • Sonia Schwartz, 2010. "Pollution Permit Market: Using Incentive Contracts to Reduce Dominant Firm Inefficiencies," Economics Bulletin, AccessEcon, vol. 30(4), pages 3201-3208.
    • Handle: RePEc:ebl:ecbull:eb-10-00264
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    File URL: http://www.accessecon.com/Pubs/EB/2010/Volume30/EB-10-V30-I4-P295.pdf
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    More about this item

    Keywords

    pollution quotas; incentive contract.;

    JEL classification:

    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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