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Welfare improvement properties of an allowance market in a production economy

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Abstract

This paper studies the welfare improvement properties of a market of allowances in an economy with a single type of externality. We show that thanks to the opening of such a market the Pareto optima can be decentralized as marginal pricing equilibria. However, the set of equilibria is much larger than this of Pareto optima. In order to discriminate the efficient equilibria we introduce a demand revealing mechanism tailored for this framework

Suggested Citation

  • Antoine Mandel, 2007. "Welfare improvement properties of an allowance market in a production economy," Documents de travail du Centre d'Economie de la Sorbonne b07029, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    • Handle: RePEc:mse:cesdoc:b07029
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    References listed on IDEAS

    as
    1. Conley, John P. & Smith, Stefani C., 2005. "Coasian equilibrium," Journal of Mathematical Economics, Elsevier, vol. 41(6), pages 687-704, September.
    2. Guttman, Joel M, 1978. "Understanding Collective Action: Matching Behavior," American Economic Review, American Economic Association, vol. 68(2), pages 251-255, May.
    3. Jean-Marc Bonnisseau, 1994. "Caractérisation des optima de pareto dans une économie avec effets externes," Annals of Economics and Statistics, GENES, issue 36, pages 97-112.
    4. R. H. Coase, 2013. "The Problem of Social Cost," Journal of Law and Economics, University of Chicago Press, vol. 56(4), pages 837-877.
    5. repec:adr:anecst:y:1994:i:36:p:05 is not listed on IDEAS
    6. Boyd, John III & Conley, John P., 1997. "Fundamental Nonconvexities in Arrovian Markets and a Coasian Solution to the Problem of Externalities," Journal of Economic Theory, Elsevier, vol. 72(2), pages 388-407, February.
    7. 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.
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    More about this item

    Keywords

    General equilibrium theory; Pareto Optimality; externalities; markets of allowances;
    All these keywords.

    JEL classification:

    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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