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The air pollution emission permits market in the EU and moral hazard


  • Francisco Alvarez

    () (Ftos. Analisis Economico II Universidad Complutense Madrid)

  • Ester Camiña

    (Universidad Complutense Madrid)


The European Environmental Agency (EEA) assigns periodically air pollution emission rights among the EC member states, who, in turn, share their respective endowment among the polluting firms. There exists a moral hazard problem since the EEA does not observe abatement efforts. We propose a theoretical model to analyze the effects that a market for emission rights has on the abatement efforts that the different firms undertake to reduce pollution. Moreover, we analyze how different environmental policies induce different abatement efforts

Suggested Citation

  • Francisco Alvarez & Ester Camiña, 2006. "The air pollution emission permits market in the EU and moral hazard," Computing in Economics and Finance 2006 274, Society for Computational Economics.
  • Handle: RePEc:sce:scecfa:274

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    References listed on IDEAS

    1. Angela A. Hung & Charles R. Plott, 2001. "Information Cascades: Replication and an Extension to Majority Rule and Conformity-Rewarding Institutions," American Economic Review, American Economic Association, vol. 91(5), pages 1508-1520, December.
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    3. Anderson, Lisa R & Holt, Charles A, 1997. "Information Cascades in the Laboratory," American Economic Review, American Economic Association, vol. 87(5), pages 847-862, December.
    4. Antonio E. Bernardo & Ivo Welch, 2001. "On the Evolution of Overconfidence and Entrepreneurs," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 10(3), pages 301-330, September.
    5. Chamley,Christophe P., 2004. "Rational Herds," Cambridge Books, Cambridge University Press, number 9780521530927, March.
    6. Chamley,Christophe P., 2004. "Rational Herds," Cambridge Books, Cambridge University Press, number 9780521824019, March.
    7. Abhijit V. Banerjee, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, Oxford University Press, vol. 107(3), pages 797-817.
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    More about this item


    Moral Hazard; Environmental Economics; Markets;

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design


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