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Testing the Efficiency of a Tradeable Permits Market

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  • Juan-Pablo Montero

    (Instituto de Economía. Pontificia Universidad Católica de Chile.)

Abstract

A tradeable permits market is said to be efficient when all affected firms trade permits until their marginal costs equal the market price. Detailed firm-level data are generally required to perform such an efficiency test, yet such information is rarely available. If firms face a declining target, however, and are allowed to bank permits, as has occured recently, aggregated data such as the evolution of the permits bank is sufficient to test for either less than optimal market participation or the exercise of market power. An application to the U.S. sulfur dioxide emission permits market is provided.

Suggested Citation

  • Juan-Pablo Montero, 2002. "Testing the Efficiency of a Tradeable Permits Market," Documentos de Trabajo 224, Instituto de Economia. Pontificia Universidad Católica de Chile..
    • Handle: RePEc:ioe:doctra:224
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    File URL: https://www.economia.uc.cl/docs/doctra/dt-224.pdf
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    References listed on IDEAS

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    Cited by:

    1. Hitaj, Claudia & Stocking, Andrew, 2016. "Market efficiency and the U.S. market for sulfur dioxide allowances," Energy Economics, Elsevier, vol. 55(C), pages 135-147.

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