A Permit Allocation Contest for a Tradable Pollution Permit Market
In this paper we advocate a new initial allocation mechanism for a tradable pollution permit market. We outline a Permit Allocation Contest (PAC) that distributes permits to firms based on their rank relative to other firms. This ranking is achieved by ordering firms based on an observable 'external action' where the external action is an activity or characteristic of the firm that is independent of their choice of emissions in the tradeable permit market. We show that this mechanism efficiently allocates permits and, as a result, the tradeable permit market is cost-effective. We determine the symmetric equilibrium strategy of each firm in choosing their external action and find the choice is influenced by the firm's cost structure and the regulator's choice of permit allocation schedule (distribution of permits to the market). Furthermore, we investigate the factors that determine the regulator's choice of optimal permit allocation schedules.
|Date of creation:||Mar 2008|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +41 44 632 03 87
Fax: +41 44 632 13 62
Web page: http://www.cer.ethz.ch
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ian Mackenzie & Nick Hanley & Tatiana Kornienko, 2008. "The optimal initial allocation of pollution permits: a relative performance approach," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 39(3), pages 265-282, March.
When requesting a correction, please mention this item's handle: RePEc:eth:wpswif:08-82. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.