IDEAS home Printed from https://ideas.repec.org/p/stl/stledp/2010-02.html
   My bibliography  Save this paper

The effects of rent seeking over tradable pollution permits

Author

Listed:
  • Hanley, Nicholas
  • Mackenzie, Ian A

Abstract

The establishment of a tradable permit market requires the regulator to select a level of aggregate emissions and then distribute the associated permits (rent) to specific groups. In most circumstances, these decisions are often politically contentious and frequently influenced by rent seeking behaviour. In this paper, we use a contest model to analyse the effects of rent seeking effort when permits are freely distributed (grandfathered). Rent seeking behaviour can influence both the share of permits which an individual firm receives and also the total supply of permits. This latter impact depends on the responsiveness of the regulator to aggregate rent seeking effort. Using a three-stage game, we show that rent seeking can influence both the distribution of rents and the ex post value of these rents, whilst welfare usually decreases in the responsiveness of the regulator.

Suggested Citation

  • Hanley, Nicholas & Mackenzie, Ian A, 2010. "The effects of rent seeking over tradable pollution permits," Stirling Economics Discussion Papers 2010-02, University of Stirling, Division of Economics.
    • Handle: RePEc:stl:stledp:2010-02
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/1893/2061
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Robert W. Hahn, 1984. "Market Power and Transferable Property Rights," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 99(4), pages 753-765.
    2. Chung, Tai-Yeong, 1996. "Rent-Seeking Contest When the Prize Increases with Aggregate Efforts," Public Choice, Springer, vol. 87(1-2), pages 55-66, April.
    3. Konrad, Kai A., 2009. "Strategy and Dynamics in Contests," OUP Catalogue, Oxford University Press, number 9780199549603.
    4. Stavins, Robert, 2004. "Introduction to the Political Economy of Environmental Regulations," RFF Working Paper Series dp-04-12, Resources for the Future.
    5. Montgomery, W. David, 1972. "Markets in licenses and efficient pollution control programs," Journal of Economic Theory, Elsevier, vol. 5(3), pages 395-418, December.
    6. Fell, Harrison & MacKenzie, Ian A. & Pizer, William A., 2012. "Prices versus quantities versus bankable quantities," Resource and Energy Economics, Elsevier, vol. 34(4), pages 607-623.
    7. Ellerman,A. Denny & Buchner,Barbara K. & Carraro,Carlo (ed.), 2007. "Allocation in the European Emissions Trading Scheme," Cambridge Books, Cambridge University Press, number 9780521875684, September.
    8. Avinash Dixit, 2008. "Strategic Behavior in Contests," Springer Books, in: Roger D. Congleton & Arye L. Hillman & Kai A. Konrad (ed.), 40 Years of Research on Rent Seeking 1, pages 431-438, Springer.
    9. Hillman, Arye L, 1982. "Declining Industries and Political-Support Protectionist Motives," American Economic Review, American Economic Association, vol. 72(5), pages 1180-1187, December.
    10. Yu-Bong Lai, 2008. "Auctions or grandfathering: the political economy of tradable emission permits," Public Choice, Springer, vol. 136(1), pages 181-200, July.
    11. Richard Newell & William Pizer & Jiangfeng Zhang, 2005. "Managing Permit Markets to Stabilize Prices," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 31(2), pages 133-157, June.
    12. Shmuel Nitzan, 2008. "Collective Rent Dissipation," Springer Books, in: Roger D. Congleton & Arye L. Hillman & Kai A. Konrad (ed.), 40 Years of Research on Rent Seeking 1, pages 309-321, Springer.
    13. Ian Mackenzie & Nick Hanley & Tatiana Kornienko, 2008. "The optimal initial allocation of pollution permits: a relative performance approach," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 39(3), pages 265-282, March.
    14. Krishna, Vijay, 2009. "Auction Theory," Elsevier Monographs, Elsevier, edition 2, number 9780123745071.
    15. Giuseppe Dari-Mattiacci & Sander Onderstal & Francesco Parisi, 2009. "Seeking rents in the shadow of Coase," Public Choice, Springer, vol. 139(1), pages 171-196, April.
    16. Grossman, Gene M & Helpman, Elhanan, 1994. "Protection for Sale," American Economic Review, American Economic Association, vol. 84(4), pages 833-850, September.
    17. Newell, Richard G. & Pizer, William A., 2003. "Regulating stock externalities under uncertainty," Journal of Environmental Economics and Management, Elsevier, vol. 45(2, Supple), pages 416-432, March.
    18. Stergios Skaperdas, 1996. "Contest success functions (*)," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 7(2), pages 283-290.
    19. Arye L. Hillman & John G. Riley, 1989. "Politically Contestable Rents And Transfers," Economics and Politics, Wiley Blackwell, vol. 1(1), pages 17-39, March.
    20. Carolyn Fischer, 2003. "Combining rate-based and cap-and-trade emissions policies," Climate Policy, Taylor & Francis Journals, vol. 3(sup2), pages 89-103, December.
    21. Posner, Richard A, 1975. "The Social Costs of Monopoly and Regulation," Journal of Political Economy, University of Chicago Press, vol. 83(4), pages 807-827, August.
    22. William A. Pizer, 2005. "The case for intensity targets," Climate Policy, Taylor & Francis Journals, vol. 5(4), pages 455-462, July.
    23. Wallace E. Oates & Paul R. Portney & Wallace E. Oates & Paul R. Portney, 2004. "The Political Economy of Environmental Policy," Chapters, in: Environmental Policy and Fiscal Federalism, chapter 1, pages 3-30, Edward Elgar Publishing.
    24. Helm, Carsten, 2003. "International emissions trading with endogenous allowance choices," Journal of Public Economics, Elsevier, vol. 87(12), pages 2737-2747, December.
    25. Montero, Juan-Pablo & Sanchez, Jose Miguel & Katz, Ricardo, 2002. "A Market-Based Environmental Policy Experiment in Chile," Journal of Law and Economics, University of Chicago Press, vol. 45(1), pages 267-287, April.
    26. Jacoby, Henry D. & Ellerman, A. Denny, 2004. "The safety valve and climate policy," Energy Policy, Elsevier, vol. 32(4), pages 481-491, March.
    27. Svendsen, Gert Tinggaard, 2002. "Lobbyism and CO2 trade in the EU," Working Papers 02-16, University of Aarhus, Aarhus School of Business, Department of Economics.
    28. Pizer, William A., 1999. "The optimal choice of climate change policy in the presence of uncertainty," Resource and Energy Economics, Elsevier, vol. 21(3-4), pages 255-287, August.
    29. Krueger, Anne O, 1974. "The Political Economy of the Rent-Seeking Society," American Economic Review, American Economic Association, vol. 64(3), pages 291-303, June.
    30. Pizer, William A., 2002. "Combining price and quantity controls to mitigate global climate change," Journal of Public Economics, Elsevier, vol. 85(3), pages 409-434, September.
    31. Robert N. Stavins (ed.), 2004. "The Political Economy of Environmental Regulation," Books, Edward Elgar Publishing, number 3142.
    32. Shaffer, Sherrill, 2006. "War, labor tournaments, and contest payoffs," Economics Letters, Elsevier, vol. 92(2), pages 250-255, August.
    33. Yu-Bong Lai, 2007. "The Optimal Distribution of Pollution Rights in the Presence of Political Distortions," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 36(3), pages 367-388, March.
    34. Joskow, Paul L & Schmalensee, Richard, 1998. "The Political Economy of Market-Based Environmental Policy: The U.S. Acid Rain Program," Journal of Law and Economics, University of Chicago Press, vol. 41(1), pages 37-83, April.
    35. Yong Sui, 2009. "Rent-seeking contests with private values and resale," Public Choice, Springer, vol. 138(3), pages 409-422, March.
    36. Nitzan, Shmuel, 1994. "Modelling rent-seeking contests," European Journal of Political Economy, Elsevier, vol. 10(1), pages 41-60, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Alex Dickson & Ian A. MacKenzie, 2022. "Permit Markets with Political and Market Distortions," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 82(1), pages 227-255, May.
    2. Jean-Daniel Guigou & Bruno Lovat & Nicolas Treich, 2017. "Risky rents," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 5(2), pages 151-164, October.
    3. Ian A. MacKenzie, 2009. "Controlling externalities in the presence of rent seeking," CER-ETH Economics working paper series 09/111, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    4. Balistreri, Edward J. & Hillberry, Russell H. & Rutherford, Thomas F., 2010. "Trade and welfare: Does industrial organization matter?," Economics Letters, Elsevier, vol. 109(2), pages 85-87, November.
    5. Ian A. Lange & Sarah Polborn, 2012. "Can Lobbying Encourage Abatement? Designing a New Policy Instrument," CESifo Working Paper Series 3760, CESifo.
    6. Friesen, Lana & MacKenzie, Ian A. & Nguyen, Mai Phuong, 2023. "Initially contestable property rights and Coase: Evidence from the lab," Journal of Environmental Economics and Management, Elsevier, vol. 120(C).
    7. Ashwin Rode, 2021. "Rent Seeking over Tradable Emission Permits," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 78(2), pages 257-285, February.
    8. Ian A. MacKenzie, 2015. "Prices versus quantities with distributional rent seeking," Discussion Papers Series 548, School of Economics, University of Queensland, Australia.
    9. Ian A. MacKenzie, 2017. "Rent creation and rent seeking in environmental policy," Public Choice, Springer, vol. 171(1), pages 145-166, April.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Gil S. Epstein & Shmuel Nitzan, 2003. "Political culture and monopoly price determination," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 21(1), pages 1-19, August.
    2. Alex Dickson & Ian A. MacKenzie, 2022. "Permit Markets with Political and Market Distortions," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 82(1), pages 227-255, May.
    3. Ian A. MacKenzie, 2009. "Controlling externalities in the presence of rent seeking," CER-ETH Economics working paper series 09/111, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    4. Ian A. MacKenzie, 2017. "Rent creation and rent seeking in environmental policy," Public Choice, Springer, vol. 171(1), pages 145-166, April.
    5. Arye L. Hillman & Heinrich W. Ursprung, 2016. "Where are the rent seekers?," Constitutional Political Economy, Springer, vol. 27(2), pages 124-141, June.
    6. Van Long, Ngo, 2013. "The theory of contests: A unified model and review of the literature," European Journal of Political Economy, Elsevier, vol. 32(C), pages 161-181.
    7. Cedric Duvinage & Peter-J. Jost, 2019. "The Role of Referees in Professional Sports Contests," Journal of Sports Economics, , vol. 20(8), pages 1014-1050, December.
    8. Alice Guerra & Barbara Luppi & Francesco Parisi, 2019. "Productive and unproductive competition: a unified framework," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 36(3), pages 785-804, October.
    9. Stavins, Robert, 2004. "Environmental Economics," Working Paper Series rwp04-051, Harvard University, John F. Kennedy School of Government.
    10. Kyung Hwan Baik & Jong Hwa Lee, 2013. "Endogenous Timing In Contests With Delegation," Economic Inquiry, Western Economic Association International, vol. 51(4), pages 2044-2055, October.
    11. Fell, Harrison & MacKenzie, Ian A. & Pizer, William A., 2012. "Prices versus quantities versus bankable quantities," Resource and Energy Economics, Elsevier, vol. 34(4), pages 607-623.
    12. Konrad, Kai A., 2007. "Strategy in contests: an introduction [Strategie in Turnieren – eine Einführung]," Discussion Papers, Research Unit: Market Processes and Governance SP II 2007-01, WZB Berlin Social Science Center.
    13. Arye L. Hillman & Heinrich W. Ursprung, 2016. "Academic exclusion: some experiences," Public Choice, Springer, vol. 167(1), pages 1-20, April.
    14. Arye L. Hillman & Ngo Van Long, 2017. "Rent Seeking: The Social Cost of Contestable Benefits," CESifo Working Paper Series 6462, CESifo.
    15. Joseph E. Aldy & Alan J. Krupnick & Richard G. Newell & Ian W. H. Parry & William A. Pizer, 2010. "Designing Climate Mitigation Policy," Journal of Economic Literature, American Economic Association, vol. 48(4), pages 903-934, December.
    16. MacKenzie, Ian A. & Ohndorf, Markus, 2012. "Cap-and-trade, taxes, and distributional conflict," Journal of Environmental Economics and Management, Elsevier, vol. 63(1), pages 51-65.
    17. Ewerhart, Christian, 2017. "Contests with small noise and the robustness of the all-pay auction," Games and Economic Behavior, Elsevier, vol. 105(C), pages 195-211.
    18. Arye Hillman & Ngo Van Long, 2017. "The social cost of contestable benefits," CIRANO Working Papers 2017s-11, CIRANO.
    19. Lee, Sanghack & Hyeong Kang, J., 1998. "Collective contests with externalities," European Journal of Political Economy, Elsevier, vol. 14(4), pages 727-738, November.
    20. Emmanuel Dechenaux & Dan Kovenock & Roman Sheremeta, 2015. "A survey of experimental research on contests, all-pay auctions and tournaments," Experimental Economics, Springer;Economic Science Association, vol. 18(4), pages 609-669, December.

    More about this item

    Keywords

    tradable permit market; rent seeking; initial allocation;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:stl:stledp:2010-02. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Liam Delaney (email available below). General contact details of provider: https://edirc.repec.org/data/destiuk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.