Emission Trading vs. Rigid Regulations in the Control of Vehicle Emissions
This paper presents the results of an empirical study of the cost savings associated with a marketable permit system for light-duty vehicles relative to the current system of uniform standards. The sensitivity of cost savings estimates to model specification are examined, including estimation approaches for obtaining cost functions, issues of the functional form of emission control cost functions, and choice of pollution variables included in the estimated cost functions. Additionally, the precision of point estimates of cost savings are explored using a simulation method for obtaining estimates of the standard errors of cost savings.