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Optimal Allocation of Tradable Pollution Rights and Market Structures

  • Dafna Eshel


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    Tradable environmental rights are increasingly pursed as a regulatory instrument, to control for environmental quality. However, in the presence of market power, regulation through an allocation of tradable rights generally yield inefficient outcomes. This article analyzes the effect of the initial distribution of tradable rights on the firms’ strategies and performance in abatement and production, and proposes an efficient criterion for the allocation of tradable rights among firms with market power and competitive fringe firms. The suggested criterion maximizes efficiency of the market based regulation. A simple numerical example illustrates the theoretical discussion. Copyright Springer Science+Business Media, Inc. 2005

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    Article provided by Springer in its journal Journal of Regulatory Economics.

    Volume (Year): 28 (2005)
    Issue (Month): 2 (09)
    Pages: 205-223

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    Handle: RePEc:kap:regeco:v:28:y:2005:i:2:p:205-223
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    1. Nick Hanley & Ian Moffatt, 1992. "Efficiency and Distributional Aspects of Market Mechanisms in the Control of Pollution: An Empirical Analysis," Working Papers Series 92/2, University of Stirling, Division of Economics.
    2. Kerr, Suzi & Sanchirico, James & Newell, Richard, 2002. "Fishing Quota Markets," Discussion Papers dp-02-20, Resources For the Future.
    3. Fershtman, C. & de Zeeuw, A.J., 1996. "Tradeable Emission Permits in Oligopoly," Discussion Paper 1996-30, Tilburg University, Center for Economic Research.
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