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The Efficiency, Equity and Politics of Emission Permit Trading

  • Wooders, M.
  • Zissimos, B.

This paper illustrates that an international permit trading system may hurt relatively poor countries by making associated economic activities unaffordable. A model is constructed in which the free market solution is Pareto inefficient as a result of pollution. The introduction of tradable permits allows pollution to be internalised, and brings about an increase in the total social surplus. But when incomes vary, this may not lead to a Pareto improvement; those in poor countries stop the polluting activity because they cannot afford to do otherwise.

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File URL: http://www2.warwick.ac.uk/fac/soc/economics/research/workingpapers/2008/twerp586.pdf
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Paper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 586.

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Length: 23 pages
Date of creation: 2001
Date of revision:
Handle: RePEc:wrk:warwec:586
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Web page: http://www2.warwick.ac.uk/fac/soc/economics/

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  1. Borenstein, Severin, 1988. "On the Efficiency of Competitive Markets for Operating Licenses," The Quarterly Journal of Economics, MIT Press, vol. 103(2), pages 357-85, May.
  2. Kaneko, Mamoru & Wooders, Myrna Holtz, 1989. "The core of a continuum economy with widespread externalities and finite coalitions: From finite to continuum economies," Journal of Economic Theory, Elsevier, vol. 49(1), pages 135-168, October.
  3. Hammond, Peter J. & Kaneko, Mamoru & Wooders, Myrna Holtz, 1989. "Continuum economies with finite coalitions: Core, equilibria, and widespread externalities," Journal of Economic Theory, Elsevier, vol. 49(1), pages 113-134, October.
  4. Copeland,B.R. & Taylor,M.S., 2000. "Free trade and global warming : a trade theory view of the Kyoto protocol," Working papers 4, Wisconsin Madison - Social Systems.
  5. Charles Howe, 1994. "Taxesversus tradable discharge permits: A review in the light of the U.S. and European experience," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 4(2), pages 151-169, April.
  6. Robert W. Staiger & Kyle Bagwell, 1999. "An Economic Theory of GATT," American Economic Review, American Economic Association, vol. 89(1), pages 215-248, March.
  7. Farrow, Scott, 1995. "The dual political economy of taxes and tradable permits," Economics Letters, Elsevier, vol. 49(2), pages 217-220, August.
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