Using contests to allocate pollution rights
In this paper we advocate a new initial allocation mechanism for a tradable pollution permit market. We outline a Permit Allocation Contest (PAC) that distributes permits to firms based on their rank relative to other firms. This ranking is achieved by ordering firms based on an observable 'external action' where the external action is an activity or characteristic of the firm that is independent of their choice of emissions in the tradable permit market. We argue that this mechanism has a number of benefits over auctioning and grandfathering. Using this mechanism efficiently distributes permits, allows for the attainment of a secondary policy objective and has the potential to be more politically appealing than existing alternatives.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
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.:
- Krishna, Vijay & Morgan, John, 1997.
"An Analysis of the War of Attrition and the All-Pay Auction,"
Journal of Economic Theory,
Elsevier, vol. 72(2), pages 343-362, February.
- Vijay Krishna & John Morgan, 1994. "An Analysis of the War of Attrition and the All-Pay Auction," Game Theory and Information 9409002, EconWPA.
- Parry Ian W. H., 1995. "Pollution Taxes and Revenue Recycling," Journal of Environmental Economics and Management, Elsevier, vol. 29(3), pages S64-S77, November.
- Barut, Yasar & Kovenock, Dan, 1998. "The symmetric multiple prize all-pay auction with complete information," European Journal of Political Economy, Elsevier, vol. 14(4), pages 627-644, November.
- Montgomery, W. David, 1972. "Markets in licenses and efficient pollution control programs," Journal of Economic Theory, Elsevier, vol. 5(3), pages 395-418, December.
- Jerry R. Green & Nancy L. Stokey, 1982.
"A Comparison of Tournaments and Contracts,"
NBER Working Papers
0840, National Bureau of Economic Research, Inc.
- Chichilnisky, Graciela & Heal, Geoffrey, 1994.
"Who should abate carbon emissions? : An international viewpoint,"
Elsevier, vol. 44(4), pages 443-449, April.
- Graciela Chichilnisky & Geoffrey Heal, 1993. "Who Should Abate Carbon Emissions? An International Viewpoint," NBER Working Papers 4425, National Bureau of Economic Research, Inc.
- Adam Rose & Brandt Stevens & Jae Edmonds & Marshall Wise, 1998. "International Equity and Differentiation in Global Warming Policy," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 12(1), pages 25-51, July.
- Böhringer, Christoph & Lange, Andreas, 2003.
"On the Design of Optimal Grandfathering Schemes for Emission Allowances,"
ZEW Discussion Papers
03-08, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
- Bohringer, Christoph & Lange, Andreas, 2005. "On the design of optimal grandfathering schemes for emission allowances," European Economic Review, Elsevier, vol. 49(8), pages 2041-2055, November.
- Lazear, Edward P & Rosen, Sherwin, 1981.
"Rank-Order Tournaments as Optimum Labor Contracts,"
Journal of Political Economy,
University of Chicago Press, vol. 89(5), pages 841-864, October.
- Ian A. MacKenzie, & Nick Hanley & Tatiana Kornienko, 2008. "A Permit Allocation Contest for a Tradable Pollution Permit Market," CER-ETH Economics working paper series 08/82, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
- Parry, Ian & Goulder, Lawrence & Williams III, Roberton, 1997.
"When Can Carbon Abatement Policies Increase Welfare? The Fundamental Role of Distorted Factor Markets,"
dp-97-18-rev, Resources For the Future.
- Parry, Ian W. H. & Williams, Roberton III & Goulder, Lawrence H., 1999. "When Can Carbon Abatement Policies Increase Welfare? The Fundamental Role of Distorted Factor Markets," Journal of Environmental Economics and Management, Elsevier, vol. 37(1), pages 52-84, January.
- Ian W. H. Parry & Roberton C. Williams III & Lawrence H. Goulder, 1997. "When Can Carbon Abatement Policies Increase Welfare? The Fundamental Role of Distorted Factor Markets," NBER Working Papers 5967, National Bureau of Economic Research, Inc.
- Stefan Szymanski, 2003. "The Economic Design of Sporting Contests," Journal of Economic Literature, American Economic Association, vol. 41(4), pages 1137-1187, December.
- Oehmke, James F., 1987. "The allocation of pollutant discharge permits by competitive auction," Resources and Energy, Elsevier, vol. 9(2), pages 153-162, August.
- Glazer, Amihai & Hassin, Refael, 1988. "Optimal Contests," Economic Inquiry, Western Economic Association International, vol. 26(1), pages 133-43, January.
- Peter Cramton & Suzi Kerr, 2002.
"Tradeable Carbon Permit Auctions: How and Why to Auction Not Grandfather,"
Papers of Peter Cramton
02eptc, University of Maryland, Department of Economics - Peter Cramton, revised 06 May 2002.
- Cramton, Peter & Kerr, Suzi, 2002. "Tradeable carbon permit auctions: How and why to auction not grandfather," Energy Policy, Elsevier, vol. 30(4), pages 333-345, March.
- Kerr, Suzi & Cramton, Peter, 1998. "Tradable Carbon Permit Auctions: How and Why to Auction Not Grandfather," Discussion Papers dp-98-34, Resources For the Future.
- Cramton, Peter & Kerr, Suzi, 1998. "Tradeable Carbon Permit Auctions: How and Why to Auction, Not Grandfather," Working Papers 197846, University of Maryland, Department of Agricultural and Resource Economics.
- John Pezzey & Andrew Park, 1998. "Reflections on the Double Dividend Debate," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 11(3), pages 539-555, April.
- Robert N. Stavins, 1998. "What Can We Learn from the Grand Policy Experiment? Lessons from SO2 Allowance Trading," Journal of Economic Perspectives, American Economic Association, vol. 12(3), pages 69-88, Summer.
- Franciosi Robert & Isaac R. Mark & Pingry David E. & Reynolds Stanley S., 1993. "An Experimental Investigation of the Hahn-Noll Revenue Neutral Auction for Emissions Licenses," Journal of Environmental Economics and Management, Elsevier, vol. 24(1), pages 1-24, January.
- Phylipsen, G J M & Bode, J W & Blok, K & Merkus, H & Metz, B, 1998. "A Triptych sectoral approach to burden differentiation; GHG emissions in the European bubble," Energy Policy, Elsevier, vol. 26(12), pages 929-943, October.
- Moldovanu, Benny & Sela, Aner, 2002.
Sonderforschungsbereich 504 Publications
02-06, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
- Requate, Till, 2005. "Dynamic incentives by environmental policy instruments--a survey," Ecological Economics, Elsevier, vol. 54(2-3), pages 175-195, August.
- Kverndokk, S., 1992. "Tradeable CO2 Emission Permits: Initial Distribution as a Justice Problem," Memorandum 23/1992, Oslo University, Department of Economics.
- Eyckmans, Johan & Proost, Stef & Schokkaert, Erik, 1993. "Efficiency and Distribution in Greenhouse Negotiations," Kyklos, Wiley Blackwell, vol. 46(3), pages 363-397.
- Randolph M. Lyon, 1982. "Auctions and Alternative Procedures for Allocating Pollution Rights," Land Economics, University of Wisconsin Press, vol. 58(1), pages 16-32.
- Robert W. Hahn, 1984. "Market Power and Transferable Property Rights," The Quarterly Journal of Economics, Oxford University Press, vol. 99(4), pages 753-765.
- Clark, Derek J. & Riis, Christian, 1998. "Influence and the discretionary allocation of several prizes," European Journal of Political Economy, Elsevier, vol. 14(4), pages 605-625, November.
- Moldovanu, Benny & Sela, Aner, 1999.
"The Optimal Allocation of Prizes in Contests,"
Sonderforschungsbereich 504 Publications
99-75, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
- Dilip Mookherjee, 1984. "Optimal Incentive Schemes with Many Agents," Review of Economic Studies, Oxford University Press, vol. 51(3), pages 433-446.
- Lawrence Goulder, 1995. "Environmental taxation and the double dividend: A reader's guide," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 2(2), pages 157-183, August.
- Ian Mackenzie & Nick Hanley & Tatiana Kornienko, 2008. "The optimal initial allocation of pollution permits: a relative performance approach," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 39(3), pages 265-282, March.
- Stavins Robert N., 1995. "Transaction Costs and Tradeable Permits," Journal of Environmental Economics and Management, Elsevier, vol. 29(2), pages 133-148, September.
When requesting a correction, please mention this item's handle: RePEc:eee:enepol:v:37:y:2009:i:7:p:2798-2806. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shamier, Wendy)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.