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An efficient mechanism to control correlated externalities: redistributive transfers and the coexistence of regional and global pollution permit markets

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  • Caplan, Arthur J.
  • Silva, Emilson C.D.

Abstract

We compare tradable permit markets and emission taxes as self-enforcing mechanisms to control correlated externality problems. By “correlated” we mean multiple pollutants that are jointly produced by a single source but which simultaneously cause differentiated regional and global externalities (e.g., smog and global warming). By “self-enforcing” we mean mechanisms that account for the endogeneity that exists between competing jurisdictions in the setting of environmental policy within a federation of regions. We find that joint domestic and international permit markets are Pareto efficient, while joint emissions taxes are not.
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Suggested Citation

  • Caplan, Arthur J. & Silva, Emilson C.D., 2005. "An efficient mechanism to control correlated externalities: redistributive transfers and the coexistence of regional and global pollution permit markets," Journal of Environmental Economics and Management, Elsevier, vol. 49(1), pages 68-82, January.
  • Handle: RePEc:eee:jeeman:v:49:y:2005:i:1:p:68-82
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    1. Arthur Caplan & Emilson Silva, 2007. "An equitable, efficient and implementable scheme to control global carbon dioxide emissions," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 14(3), pages 263-279, June.
    2. Wellisch, Dietmar, 1994. "Interregional spillovers in the presence of perfect and imperfect household mobility," Journal of Public Economics, Elsevier, vol. 55(2), pages 167-184, October.
    3. Caplan, Arthur J. & Silva, Emilson C. D., 1999. "Federal Acid Rain Games," Journal of Urban Economics, Elsevier, vol. 46(1), pages 25-52, July.
    4. Silva, Emilson C. D., 1997. "Decentralized and Efficient Control of Transboundary Pollution in Federal Systems," Journal of Environmental Economics and Management, Elsevier, vol. 32(1), pages 95-108, January.
    5. Caplan, Arthur J. & Cornes, Richard C. & Silva, Emilson C. D., 2000. "Pure public goods and income redistribution in a federation with decentralized leadership and imperfect labor mobility," Journal of Public Economics, Elsevier, vol. 77(2), pages 265-284, August.
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    Citations

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    Cited by:

    1. Silva, Emilson C.D. & Zhu, Xie, 2009. "Emissions trading of global and local pollutants, pollution havens and free riding," Journal of Environmental Economics and Management, Elsevier, vol. 58(2), pages 169-182, September.
    2. Gifford, Blair & Kestler, Andrew, 2008. "Toward a theory of local legitimacy by MNEs in developing nations: Newmont mining and health sustainable development in Peru," Journal of International Management, Elsevier, vol. 14(4), pages 340-352, December.
    3. Amigues, Jean-Pierre & Chakravorty, Ujjayant & Moreaux, Michel, 2010. "The Effect of Local and Global Pollution Mandates on a Nonrenewable Resource," Working Papers 2010-2, University of Alberta, Department of Economics, revised 01 Oct 2010.
    4. Stranlund, John K. & Son, Insung, 2015. "Prices versus Quantities versus Hybrids in the Presence of Co-pollutants," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 205422, Agricultural and Applied Economics Association;Western Agricultural Economics Association.
    5. Zaida Contreras, Tihomir Ancev, and Regina Betz, 2014. "Evaluation of Environmental Taxation on Multiple Air Pollutants in the Electricity Generation Sector - Evidence from New South Wales, Australia," Economics of Energy & Environmental Policy, International Association for Energy Economics, vol. 0(Number 2).
    6. Anping Chen & Nicolaas Groenewold & Alfred J. Hagger, 2013. "The regional economic effects of a reduction in carbon emissions," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 57(4), pages 483-500, October.
    7. Amigues, Jean-Pierre & Chakravorty, Ujjayant & Moreaux, Michel, 2009. "Think Globally, Act Locally? Stock vs Flow Regulation of a Fossil Fuel," TSE Working Papers 09-115, Toulouse School of Economics (TSE).
    8. Hélène Ollivier, 2016. "North–South Trade and Heterogeneous Damages from Local and Global Pollution," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 65(2), pages 337-355, October.
    9. João Rogério Sanson, 2007. "Ethics, politics, and Nonsatiation in Consumption: A Synthesis," Economia, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics], vol. 8(1), pages 1-20.
    10. Woodward, Richard T., 2011. "Double-dipping in environmental markets," Journal of Environmental Economics and Management, Elsevier, vol. 61(2), pages 153-169, March.
    11. Ren, Xiaolin & Fullerton, Don & Braden, John B., 2011. "Optimal taxation of externalities interacting through markets: A theoretical general equilibrium analysis," Resource and Energy Economics, Elsevier, vol. 33(3), pages 496-514, September.
    12. Legras, Sophie, 2011. "Incomplete model specification in a multi-pollutants setting: The case of climate change and acidification," Resource and Energy Economics, Elsevier, vol. 33(3), pages 527-543, September.
    13. Katarina Elofsson, 2011. "Delegation of Decision-Rights for Wetlands," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 50(2), pages 285-303, October.
    14. Legras, Sophie, 2010. "Managing correlated stock externalities: water taxes with a pinch of salt," Environment and Development Economics, Cambridge University Press, vol. 15(03), pages 275-292, June.
    15. Carmen Aina & Lorenzo Cappellari & Marco Francesconi, 2010. "Student Performance may not Improve when Universities are Choosier," CESifo Working Paper Series 3264, CESifo Group Munich.
    16. Anping Chen & Nicolaas Groenewold, 2014. "The regional economic effects of a reduction in carbon emissions and an evaluation of offsetting policies in China," Papers in Regional Science, Wiley Blackwell, pages 429-453.
    17. Aurélie Slechten & Vincenzo Verardi, 2016. "Measuring the Impact of Multiple Air Pollution Agreements on Global CO2 Emissions," Land Economics, University of Wisconsin Press, vol. 92(3), pages 534-554.
    18. Ambec, Stefan & Coria, Jessica, 2013. "Prices vs quantities with multiple pollutants," Journal of Environmental Economics and Management, Elsevier, vol. 66(1), pages 123-140.
    19. Arthur Caplan, 2006. "A Comparison of Emission Taxes and Permit Markets for Controlling Correlated Externalities," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 34(4), pages 471-492, August.
    20. Gifford, Blair & Kestler, Andrew & Anand, Sharmila, 2010. "Building local legitimacy into corporate social responsibility: Gold mining firms in developing nations," Journal of World Business, Elsevier, vol. 45(3), pages 304-311, July.
    21. Shindell, Drew T., 2013. "The social cost of atmospheric release," Economics Discussion Papers 2013-56, Kiel Institute for the World Economy (IfW).
    22. repec:wsi:wepxxx:v:03:y:2017:i:02:n:s2382624x16500338 is not listed on IDEAS

    More about this item

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy

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