Designing organizations for trading pollution rights
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.
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- Myerson, Roger B. & Satterthwaite, Mark A., 1983.
"Efficient mechanisms for bilateral trading,"
Journal of Economic Theory,
Elsevier, vol. 29(2), pages 265-281, April.
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