IDEAS home Printed from
   My bibliography  Save this paper

Should the regulator allow citizens to participate in tradable permits markets?


  • Olivier ROUSSE


Since the seminal paper written by Weitzman (1974), the “prices vs. quantities” debate regarding choice of policy instrument under imperfect information and uncertainty has been an ongoing concern for economists, especially in the field of the environment. In this debate, several papers have recommended that the regulator allow pollution victims (citizens) to participate in tradable permits markets. According to this literature, when pollution victims purchase and withhold (i.e. destroy) emission rights from polluting firms, this means that the overall quota is not efficient and that welfare gains will be realised. In this paper, we present further theoretical results showing that citizen participation in tradable quotas markets may become welfare decreasing. Indeed, citizens can aggravate the first error made by the regulator if they are also under uncertainty about the marginal benefit curve or if they exhibit strong enough risk aversion. Therefore, we recommend that the regulator limit citizen participation to a certain percentage of permits. In doing so, we extend the “prices versus quantities” debate to simultaneous uncertainty and risk aversion by showing that a marketable permits system offers the regulator an opportunity to control the negative effects of agents’ (citizens’ and firms’) risk aversion on welfare.

Suggested Citation

  • Olivier ROUSSE, 2008. "Should the regulator allow citizens to participate in tradable permits markets?," Cahiers du CREDEN (CREDEN Working Papers) 08.03.75, CREDEN (Centre de Recherche en Economie et Droit de l'Energie), Faculty of Economics, University of Montpellier 1.
  • Handle: RePEc:mop:credwp:08.03.75

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Stefani C. Smith & Andrew J. Yates, 2003. "Should Consumers Be Priced Out of Pollution-Permit Markets?," The Journal of Economic Education, Taylor & Francis Journals, vol. 34(2), pages 181-189, January.
    Full references (including those not matched with items on IDEAS)

    More about this item


    citizens’ participation; prices vs. quantities; risk aversion;

    JEL classification:

    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mop:credwp:08.03.75. 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: (Olivier ROUSSE). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.