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Tradable permit allocations and sequential choice

  • MacKenzie, Ian A.

This paper investigates initial allocation choices in an international tradable pollution permit market. For two sovereign governments, we compare allocation choices that are either simultaneously or sequentially announced. We show sequential allocation announcements result in higher (lower) aggregate emissions when announcements are strategic substitutes (complements). Whether allocation announcements are strategic substitutes or complements depends on the relationship between the follower's damage function and governments' abatement costs. When the marginal damage function is relatively steep (flat), allocation announcements are strategic substitutes (complements). For quadratic abatement costs and damages, sequential announcements provide a higher level of aggregate emissions.

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Article provided by Elsevier in its journal Resource and Energy Economics.

Volume (Year): 33 (2011)
Issue (Month): 1 (January)
Pages: 268-278

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Handle: RePEc:eee:resene:v:33:y:2011:i:1:p:268-278
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505569

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  1. Ulph, Alistair, 1996. "Environmental Policy and International Trade when Governments and Producers Act Strategically," Journal of Environmental Economics and Management, Elsevier, vol. 30(3), pages 265-281, May.
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