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| Author: | Krysiak, F.C. Schweitzer, P. |
| Title: | The optimal size of a permit market |
| Journal: | Journal of Environmental Economics and Management
2010 : SEP, VOL. 60:2, p. 133-143 |
| Index terms: | trade uncertainty regulations asymmetric information pollution environmental policy |
| Language: | eng |
| Abstract: | Regulating the non-uniformly mixed pollutants' emissions with a permit market contains the risk of hot spot formation, which can be diminished by dividing the regulation area into smaller trading zones. This approach has been extensively discussed for the full-information case. We consider incomplete information about the emittersÂ’ abatement costs, their locations, and pollution dispersion. Then, the optimal number of trading zones and the optimal number of permits per zone are derived and analyze is done about the conditions a system of independent trading zones requires to be superior to other policy measures. The results indicate that appropriately sized permit markets generally suit well to regulate non-uniformly mixed pollutants under informational constraints. Only when there is substantial heterogeneity and a highly non-linear damage function it may be optimal to use command-and-control strategies. |
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