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Impediments To Trade In Markets For Pollution Permits

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  • Munro, Alistair
  • Hanley, Nick
  • Faichney, Robin
  • Shortle, James S.

Abstract

This paper considers nine possible reasons why firms might trade less often in permit markets than was expected in the early development, and consequent simulations, of the theory. Fewer trades are bad in the sense that they lead to a potential erosion of the cost-saving properties of tradeable permit systems. The first reason considered is one which has popular currency, namely that of imperfect competition in the permit market. However, we reject this as a convincing explanation. The paper then reviews eight other possible explanations; these are oligopoly in the output market; future endowments of property rights; loss aversion; asymmetric information; non-convexities in cost functions; agency problems within the firm; transactions costs; and the sequential nature of trading.

Suggested Citation

  • Munro, Alistair & Hanley, Nick & Faichney, Robin & Shortle, James S., 1995. "Impediments To Trade In Markets For Pollution Permits," Discussion Papers in Ecological Economics 140540, University of Stirling, Department of Economics.
    • Handle: RePEc:ags:ukstdp:140540
    DOI: 10.22004/ag.econ.140540
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    Resource /Energy Economics and Policy;

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