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Tradable Permits vs Ecological Dumping

  • Fabio Antoniou
  • Panos Hatzipanayotou

    ()

  • Phoebe Koundouri

In this paper we examine an alternative policy scenario, where governments allow polluting firms to trade permits in a strategic environmental policy model. We demonstrate, among other things, that with no market power in the permits market, governments of the exporting firms do not have an incentive to under-regulate pollution in order to become more competitive. This strategic effect is reversed and leads to a welfare level closer to the cooperative one and strictly higher to that when permits are non-tradable. Allowing for market power in the permits market, the incentive to underregulate pollution re-appears regardless of whether permits are tradable or not. With tradable permits, however, the incentive to under-regulate pollution is comparatively weaker relative to the case of non-tradable permits. This entails potential benefits for the exporting firms and countries since the prisoners’ dilemma is moderated.

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File URL: http://www.landecon.cam.ac.uk/RePEc/pdf/502010.pdf
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Paper provided by University of Cambridge, Department of Land Economics in its series Environmental Economy and Policy Research Working Papers with number 50.2010.

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Date of creation: 2010
Date of revision: 2010
Handle: RePEc:lnd:wpaper:502010
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  11. Rose, Adam & Peterson, Thomas D. & Zhang, ZhongXiang, 2006. "Regional carbon dioxide permit trading in the United States: coalition choices for Pennsylvania," MPRA Paper 13547, University Library of Munich, Germany.
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  17. Conrad Klaus, 1993. "Taxes and Subsidies for Pollution-Intensive Industries as Trade Policy," Journal of Environmental Economics and Management, Elsevier, vol. 25(2), pages 121-135, September.
  18. J. Peter Neary, 2000. "International Trade and the Environment - Theoretical and Policy Linkages," Working Papers 200018, School Of Economics, University College Dublin.
  19. Montgomery, W. David, 1972. "Markets in licenses and efficient pollution control programs," Journal of Economic Theory, Elsevier, vol. 5(3), pages 395-418, December.
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