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Walrasian prices in a market with consumption rights

Author

Listed:
  • Carlos Hervés-Beloso
  • Francisco Martínez
  • Jorge Rivera

Abstract

In this paper we consider an exchange economy where there is an external restriction for the consumption of goods. This restriction is defined by both a cap on consumption of certain commodities and the requirement of an amount of rights for the consumption of these commodities. The caps for consumption are imposed exogenously due to the negative effects that the consumption may produce. The consumption rights are distributed among the agents. This fact leads to the possibility of establishing licence or consumption rights markets. These consumption rights do not participate in agents' preferences, however the individual's budgetary constraint may be modified, leading to a reassignment of resources. The aim of this paper is to show the existence of a Walrasian equilibrium price system linking tradable rights prices with commodity prices.

Suggested Citation

  • Carlos Hervés-Beloso & Francisco Martínez & Jorge Rivera, 2010. "Walrasian prices in a market with consumption rights," Working Papers wp317, University of Chile, Department of Economics.
    • Handle: RePEc:udc:wpaper:wp317
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    More about this item

    Keywords

    competitive equilibrium; quotas; consumption rights; cap-and-trade program.;
    All these keywords.

    JEL classification:

    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects

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