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Using contests to allocate pollution rights

  • Hanley, Nicholas
  • Kornienko, Tatiana
  • Mackenzie, Ian A

In this paper we advocate a new initial allocation mechanism for a tradable pollution permit market. We outline a Permit Allocation Contest (PAC) that distributes permits to firms based on their rank relative to other firms. This ranking is achieved by ordering firms based on an observable 'external action' where the external action is an activity or characteristic of the firm that is independent of their choice of emissions in the tradeable permit market. We argue that this mechanism has a number of benefits over auctioning and grandfathering. Using this mechanism efficiently distributes permits, allows for the attainment of a sec- ondary policy objective and has the potential to be more politically appealing than existing alte rnatives.

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File URL: http://hdl.handle.net/1893/513
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Paper provided by University of Stirling, Division of Economics in its series Stirling Economics Discussion Papers with number 2008-21.

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Date of creation: Oct 2008
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Handle: RePEc:stl:stledp:2008-21
Contact details of provider: Postal: Division of Economics, University of Stirling, Stirling, Scotland FK9 4LA
Phone: +44 (0)1786 467473
Fax: +44 (0)1786 467469
Web page: http://www.econ.stir.ac.uk/

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