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Intertemporal Permit Trading For Stock Pollutants With Uncertainty

  • Tarui, Nori

This paper explores the efficiency of tradable permit markets for stock pollutants. With uncertainty about the future stock level or damages, a market with banking and borrowing is inferior, in terms of efficiency, compared to a market without banking and borrowing if the regulator commits to an initial allocation of permits. This result occurs because, with banking and borrowing and commitment, the regulator needs to specify the total allowable amount of emission over time at the initial time period before the uncertainty with the pollution stock is resolved. An alternative banking and borrowing scheme is proposed, where the regulator can update the allocation of permits to firms over time and achieve the efficient pollution accumulation.

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Paper provided by University of Minnesota, Center for International Food and Agricultural Policy in its series Working Papers with number 14431.

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Date of creation: 2002
Date of revision:
Handle: RePEc:ags:umciwp:14431
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  1. Kwerel, Evan, 1977. "To Tell the Truth: Imperfect Information and Optimal Pollution Control," Review of Economic Studies, Wiley Blackwell, vol. 44(3), pages 595-601, October.
  2. Parry, Ian & Pizer, William & Fischer, Carolyn, 1998. "Instrument Choice for Environmental Protection When Technological Innovation is Endogenous," Discussion Papers dp-99-04, Resources For the Future.
  3. Falk Ita & Mendelsohn Robert, 1993. "The Economics of Controlling Stock Pollutants: An Efficient Strategy for Greenhouse Gases," Journal of Environmental Economics and Management, Elsevier, vol. 25(1), pages 76-88, July.
  4. Olli Tahvonen, 1995. "Dynamics of pollution control when damage is sensitive to the rate of pollution accumulation," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 5(1), pages 9-27, January.
  5. Hoel, Michael & Karp, Larry, 2002. "Taxes versus quotas for a stock pollutant," Resource and Energy Economics, Elsevier, vol. 24(4), pages 367-384, November.
  6. Newell, Richard G. & Pizer, William A., 2003. "Regulating stock externalities under uncertainty," Journal of Environmental Economics and Management, Elsevier, vol. 45(2, Supple), pages 416-432, March.
  7. Yates, Andrew J. & Cronshaw, Mark B., 2001. "Pollution Permit Markets with Intertemporal Trading and Asymmetric Information," Journal of Environmental Economics and Management, Elsevier, vol. 42(1), pages 104-118, July.
  8. Montgomery, W. David, 1972. "Markets in licenses and efficient pollution control programs," Journal of Economic Theory, Elsevier, vol. 5(3), pages 395-418, December.
  9. Benford, Frank A., 1998. "On the Dynamics of the Regulation of Pollution: Incentive Compatible Regulation of a Persistent Pollutant," Journal of Environmental Economics and Management, Elsevier, vol. 36(1), pages 1-25, July.
  10. Weitzman, Martin L, 1974. "Prices vs. Quantities," Review of Economic Studies, Wiley Blackwell, vol. 41(4), pages 477-91, October.
  11. Kling, Catherine & Rubin, Jonathan, 1997. "Bankable permits for the control of environmental pollution," Journal of Public Economics, Elsevier, vol. 64(1), pages 101-115, April.
  12. Paul Leiby & Jonathan Rubin, 2001. "Intertemporal Permit Trading for the Control of Greenhouse Gas Emissions," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 19(3), pages 229-256, July.
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