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Do Environmental Markets Improve Allocative Efficiency? Evidence from U.S. Air Pollution

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Listed:
  • Kyle C. Meng
  • Vincent Thivierge

Abstract

The central appeal of environmental markets – efficient allocation of emission reductions – has been difficult to establish empirically. We develop a framework linking the theoretical change in allocative efficiency following a market-based policy to a quasi-experimental estimator. We apply this framework with administrative data to two major U.S. air pollution markets. We find allocative efficiency for pollution improved by 3.3 percentage points annually under California’s RECLAIM program but do not detect a change under the U.S.’ NOx Budget Trading Program. These results are supported by greater heterogeneity in baseline facility characteristics under RECLAIM and differences in program implementation.

Suggested Citation

  • Kyle C. Meng & Vincent Thivierge, 2025. "Do Environmental Markets Improve Allocative Efficiency? Evidence from U.S. Air Pollution," NBER Working Papers 34111, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:34111
    Note: EEE
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    More about this item

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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