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Distributing pollution rights in cap-and-trade programs : are outcomes independent of allocation?

  • Fowlie, Meredith
  • Perloff, Jeffrey M


    (University of California, Berkeley. Dept of agricultural and resource economics and policy)

Standard economic theory predicts that if property rights to pollute are clearly established, equilibrium outcomes in an efficient emissions permit market will be independent of how the emissions permits are initially distributed. This so-called independence property has important implications for policy design and implementation. Past studies document a strong positive correlation between the initial permit allocation and firm-level emissions, raising concerns that the independence property is failing to hold in real-world settings. We exploit the random assignment of firms to different permit allocation cycles in Southern California's RECLAIM program in order to test the independence of permit allocation and emissions. Our results lend empirical support to the independence hypothesis. © 2013 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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Paper provided by University of California at Berkeley, Department of Agricultural and Resource Economics and Policy in its series CUDARE Working Paper Series with number 0968R.

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Length: 43pages
Date of creation: 2008
Date of revision:
Handle: RePEc:are:cudare:0968r
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  1. Semykina, Anastasia & Wooldridge, Jeffrey M., 2010. "Estimating panel data models in the presence of endogeneity and selection," Journal of Econometrics, Elsevier, vol. 157(2), pages 375-380, August.
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  10. 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 267-87, April.
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