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Designing More Efficient Markets: Lessons from Los Angeles Smog Control

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  • Foster, Vivien
  • Hahn, Robert W

Abstract

Market-based approaches for environmental protection are beginning to take root around the world. This article attempts to improve our understanding of the performance of environmental markets by constructing and evaluating an information base on trades in Los Angeles, which includes the first detailed data on trading prices. The analysis suggests that trading activity has been shaped by the detailed regulations governing the market. In addition, transaction costs have played a crucial role. We argue that the move toward adopting market-based approaches for environmental protection needs to be accompanied by a vigorous effort to assess the properties of these systems as they are actually implemented. Copyright 1995 by the University of Chicago.

Suggested Citation

  • Foster, Vivien & Hahn, Robert W, 1995. "Designing More Efficient Markets: Lessons from Los Angeles Smog Control," Journal of Law and Economics, University of Chicago Press, vol. 38(1), pages 19-48, April.
  • Handle: RePEc:ucp:jlawec:v:38:y:1995:i:1:p:19-48
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    File URL: http://dx.doi.org/10.1086/467324
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    References listed on IDEAS

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    1. Hahn, Robert W., 1990. "Regulatory constraints on environmental markets," Journal of Public Economics, Elsevier, vol. 42(2), pages 149-175, July.
    2. Hahn, Robert W & Noll, Roger G, 1990. "Enviromental Markets in the Year 2000," Journal of Risk and Uncertainty, Springer, vol. 3(4), pages 351-367, December.
    3. Montgomery, W. David, 1972. "Markets in licenses and efficient pollution control programs," Journal of Economic Theory, Elsevier, vol. 5(3), pages 395-418, December.
    4. Wallace E. Oates & Albert M. McGartland, 1985. "Marketable Pollution Permits and Acid Rain Externalities: A Comment and Some Further Evidence," Canadian Journal of Economics, Canadian Economics Association, vol. 18(3), pages 668-675, August.
    5. Franciosi Robert & Isaac R. Mark & Pingry David E. & Reynolds Stanley S., 1993. "An Experimental Investigation of the Hahn-Noll Revenue Neutral Auction for Emissions Licenses," Journal of Environmental Economics and Management, Elsevier, vol. 24(1), pages 1-24, January.
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