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Pooling of Uncertainty: Enforcing Tradable Permits Regulation when Emissions are Stochastic

  • Janusz Mrozek

    ()

  • Andrew Keeler
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    An under-appreciated advantage of tradable permits regulation is its ability to create better decision-making when emissions are stochastic. In general, the distribution of stochastic actual emissions around intended emissions results in over- or under-compliance. Permit tradability reduces the extent to which actual aggregate emissions deviate from regulatory targets, by giving firms an additional mechanism for responding to uncertainty. We construct a two period model of permit regulation with ex post enforcement to demonstrate how the permit market distributes uncertainty, and to illustrate the importance of expectations toward permit market outcomes. Copyright Kluwer Academic Publishers 2004

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    File URL: http://hdl.handle.net/10.1007/s10640-004-1043-0
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    Article provided by European Association of Environmental and Resource Economists in its journal Environmental & Resource Economics.

    Volume (Year): 29 (2004)
    Issue (Month): 4 (December)
    Pages: 459-481

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    Handle: RePEc:kap:enreec:v:29:y:2004:i:4:p:459-481
    Contact details of provider: Web page: http://www.springerlink.com/link.asp?id=100263

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    1. Cronshaw, Mark B & Brown-Kruse, Jamie, 1996. "Regulated Firms in Pollution Permit Markets with Banking," Journal of Regulatory Economics, Springer, vol. 9(2), pages 179-89, March.
    2. Malik Arun S., 1993. "Self-Reporting and the Design of Policies for Regulating Stochastic Pollution," Journal of Environmental Economics and Management, Elsevier, vol. 24(3), pages 241-257, May.
    3. Plourde, Charles & Yeung, David, 1989. "A model of industrial pollution in a stochastic environment," Journal of Environmental Economics and Management, Elsevier, vol. 16(2), pages 97-105, March.
    4. Hahn, Robert W & Axtell, Robert L, 1995. "Reevaluating the Relationship between Transferable Property Rights and Command-and-Control Regulation," Journal of Regulatory Economics, Springer, vol. 8(2), pages 125-48, September.
    5. 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.
    6. 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.
    7. Beavis, Brian & Walker, Martin, 1983. "Random wastes, imperfect monitoring and environmental quality standards," Journal of Public Economics, Elsevier, vol. 21(3), pages 377-387, August.
    8. 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.
    9. Beavis, Brian & Dobbs, Ian, 1987. "Firm behaviour under regulatory control of stochastic environmental wastes by probabilistic constraints," Journal of Environmental Economics and Management, Elsevier, vol. 14(2), pages 112-127, June.
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