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Enforcing Transferable Permit Systems in the Presence of Market Power

  • Carolos Chavez
  • John Stanlund

We derive an enforcementstrategy for a transferable permit system inthe presence of market power that achievescomplete compliance in a cost-effective manner.We show that the presence of a firm with marketinfluence makes designing an enforcementstrategy more difficult than enforcing aperfectly competitive system. We alsore-consider Hahn's (1984) suggestion that afirm with market influence should be allocatedpermits so that it chooses to not participatein the permit market. When enforcement and itscosts are taken into account, Hahn's suggestiondoes not hold except in a very special case. Copyright Kluwer Academic Publishers 2003

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Article provided by European Association of Environmental and Resource Economists in its journal Environmental and Resource Economics.

Volume (Year): 25 (2003)
Issue (Month): 1 (May)
Pages: 65-78

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Handle: RePEc:kap:enreec:v:25:y:2003:i:1:p:65-78
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  1. Hege Westskog, 1996. "Market Power in a System of Tradeable CO2 Quotas," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 85-103.
  2. Kling, Catherine L. & Innes, Robert & Rubin, Jonathan, 1992. "Emission Permits Under Monopoly," Staff General Research Papers 1607, Iowa State University, Department of Economics.
  3. Keeler, Andrew G., 1991. "Noncompliant firms in transferable discharge permit markets: Some extensions," Journal of Environmental Economics and Management, Elsevier, vol. 21(2), pages 180-189, September.
  4. Stranlund, John K & Chavez, Carlos A, 2000. "Effective Enforcement of a Transferable Emissions Permit System with a Self-Reporting Requirement," Journal of Regulatory Economics, Springer, vol. 18(2), pages 113-31, September.
  5. Robert W. Hahn, 1984. "Market Power and Transferable Property Rights," The Quarterly Journal of Economics, Oxford University Press, vol. 99(4), pages 753-765.
  6. Malik, Arun S., 1990. "Markets for pollution control when firms are noncompliant," Journal of Environmental Economics and Management, Elsevier, vol. 18(2), pages 97-106, March.
  7. Randolph M. Lyon, 1982. "Auctions and Alternative Procedures for Allocating Pollution Rights," Land Economics, University of Wisconsin Press, vol. 58(1), pages 16-32.
  8. Malik, Arun S, 1992. "Enforcement Costs and the Choice of Policy Instruments for Controlling Pollution," Economic Inquiry, Western Economic Association International, vol. 30(4), pages 714-21, October.
  9. Joskow, Paul L & Schmalensee, Richard & Bailey, Elizabeth M, 1998. "The Market for Sulfur Dioxide Emissions," American Economic Review, American Economic Association, vol. 88(4), pages 669-85, September.
  10. Harford, Jon D., 1987. "Self-reporting of pollution and the firm's behavior under imperfectly enforceable regulations," Journal of Environmental Economics and Management, Elsevier, vol. 14(3), pages 293-303, September.
  11. Lyon, Randolph M., 1986. "Equilibrium properties of auctions and alternative procedures for allocating transferable permits," Journal of Environmental Economics and Management, Elsevier, vol. 13(2), pages 129-152, June.
  12. Misiolek, Walter S. & Elder, Harold W., 1989. "Exclusionary manipulation of markets for pollution rights," Journal of Environmental Economics and Management, Elsevier, vol. 16(2), pages 156-166, March.
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