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A Market-Based Environmental Policy Experiment in Chile

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  • Montero, Juan-Pablo
  • Sanchez, Jose Miguel
  • Katz, Ricardo

Abstract

We evaluate the performance of an environmental market in a less developed country on the basis of the experiences of the particulate matter control program of Santiago, Chile. We find that grandfathering the permits has created economic incentives for incumbent sources to more readily declare their (historic) emissions in order to claim any permits. In addition, the market has not fully developed because of transaction costs, regulatory uncertainty, and incomplete enforcement. Nonetheless, it has provided sources with the flexibility to adapt to new market conditions. Our analysis of this particular experience indicates that market-based policies can provide important advantages over traditional command-and-control policies even under limited institutional capabilities. Copyright 2002 by the University of Chicago.

Suggested Citation

  • Montero, Juan-Pablo & Sanchez, Jose Miguel & Katz, Ricardo, 2002. "A Market-Based Environmental Policy Experiment in Chile," Journal of Law and Economics, University of Chicago Press, vol. 45(1), pages 267-287, April.
  • Handle: RePEc:ucp:jlawec:v:45:y:2002:i:1:p:267-87
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    1. 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.
    2. Joskow, Paul L & Schmalensee, Richard, 1998. "The Political Economy of Market-Based Environmental Policy: The U.S. Acid Rain Program," Journal of Law and Economics, University of Chicago Press, vol. 41(1), pages 37-83, April.
    3. Stavins Robert N., 1995. "Transaction Costs and Tradeable Permits," Journal of Environmental Economics and Management, Elsevier, vol. 29(2), pages 133-148, September.
    4. Charles D. Kolstad, 2000. "Spatial Environmental and Resource Economics," Books, Edward Elgar Publishing, number 1918.
    5. Richard Schmalensee & Paul L. Joskow & A. Denny Ellerman & Juan Pablo Montero & Elizabeth M. Bailey, 1998. "An Interim Evaluation of Sulfur Dioxide Emissions Trading," Journal of Economic Perspectives, American Economic Association, vol. 12(3), pages 53-68, Summer.
    6. Hahn, Robert W, 1989. "Economic Prescriptions for Environmental Problems: How the Patient Followed the Doctor's Orders," Journal of Economic Perspectives, American Economic Association, vol. 3(2), pages 95-114, Spring.
    7. Montero, Juan-Pablo, 1998. "Marketable pollution permits with uncertainty and transaction costs," Resource and Energy Economics, Elsevier, vol. 20(1), pages 27-50, March.
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