Optimal Allocation of Tradable Pollution Rights and Market Structures

Tradable environmental rights are increasingly pursed as a regulatory instrument, to control for environmental quality. However, in the presence of market power, regulation through an allocation of tradable rights generally yield inefficient outcomes. This article analyzes the effect of the initial distribution of tradable rights on the firms’ strategies and performance in abatement and production, and proposes an efficient criterion for the allocation of tradable rights among firms with market power and competitive fringe firms. The suggested criterion maximizes efficiency of the market based regulation. A simple numerical example illustrates the theoretical discussion.I am very grateful to Richard J. Sexton for useful comments and suggestions. I also wish to thank Giacomo F. Bonanno, the editor, anonymous referees, and participants at the CORE workshop “Industrial Economics and the Environment” (2004) for helpful discussions and comments that improved the paper.     

Allocating Tradable Permits on the Basis of Market Price to Achieve Cost Effectiveness

It is a well known result that distributional constraints can lead to an imperfectly competitive permit market where the emission target is no longer met at least cost. In this paper, we suggest an allocation rule for tradable permits which can handle this problem. If the permit allocation is dependent on the market price for permits, this allocation rule can achieve both cost effectiveness and meet specific requirements for cost distribution across agents.     

The Permits Game: Conveying the Logic of Marketable Pollution Permits

A classroom game, the Permits Game is an interactive technique to help students understand how the market can be used to arrive at a cost-effective method for pollution control.     

排污权交易的层级市场理论与价格研究

借鉴股票的发行、流通、监管程序,提出排污权交易的层级市场结构理论,并据此对排污权交易进行了系统的研究。研究表明,作为排污权交易一级市场（发行市场）的补充,规范有序的排污权交易二级市场（流通市场）对提高排污权交易的效率是必要的;考虑竞争替代的因素采用双方叫价博弈模型研究二级市场的价格问题;最后分析排污权交易中的政府监督及监管问题,认为中央政府和地方政府的双重代理人特性会使政府监督严重失灵,可替代的选择是引进地方政府代理人竞争,通过“社区监督”以强化“政府监督”。     

Transactions Costs in Tradable Permit Markets: An Experimental Study of Pollution Market Designs

Regulators' choices of market rules and permit allocations influence tradable emission permit programs. This paper uses laboratory experiments to study how transaction costs interact with permit allocations to determine the cost-effectiveness of emissions abatement. With positive transaction costs, in theory the initial distribution of permits can affect both abatement costs and equity. Consistent with theory, we find that with declining marginal transaction costs prices deviate less from the efficient level if the misallocation of the initial permit distribution is greater, and the deviation from efficient prices does not vary with the initial permit endowment when marginal transaction costs are constant.     

Optimal Population Policy with Health Care and Lethal Pollution

Portuguese Economic Journal - Optimal population policy is examined in the following setup. Families invest in capital, spend on health care and determine their number of children. Firms produce...     

Optimal Emission Policy under the Risk of Irreversible Pollution

We consider an optimal consumption and pollution problem that has two important features. Environmental damages due to economic activities may be irreversible and the level at which the degradation becomes irreversible is unknown. Particular attention is paid to the situation where agents are relatively impatient and/or do not care a lot about the environment and/or Nature regenerates at low rate. We show that the optimal policy of the uncertain problem drives the economy in the long run toward a steady state while, when ignoring irreversibility, the economy follows a balanced growth path accompanied by a perpetual decrease in environmental quality and consumption, both asymptotically converging toward zero. Therefore, accounting for the risk of irreversibility induces more conservative decisions regarding consumption and polluting emissions. In general, however, we cannot rule out situations where the economy will optimally follow an irreversible path and consequently will also be left, in the long run, with an irreversibly degraded environment.     

Optimal Policy for Financial Market Liberalizations: Decentralization and Capital Flow Reversals

Financial market liberalizations are an integral part of economic development. While initial booms in investment and output are commonly seen as signs of successful deregulation, they often reverse at a later stage as international capital flows turn negative and economic growth slows markedly. Such reversals of fortunes have commonly been attributed to incorrect policies that supposedly followed the initial, appropriate measures. It is unclear, however, if capital flow reversals are actually the result of policy reversals, or if they occur as part of the normal transition when financial liberalization is accompanied by a single suboptimal policy. The later hypothesis has not been explored in the theoretical literature
We construct a general equilibrium growth model of a small open economy, in which capital flow reversals are the result of a single, suboptimal policy imposed at the beginning of the financial liberalization. We show how improper taxation of foreign borrowing initially leads to strong growth fuelled by an investment boom and foreign borrowing. Still along the transition, however, the model predicts that capital flows must reverse endogenously at a later stage, as the debt burden rises and the country-specific risk premium increases. Our data on the Latin American and East Asian countries provide strong support for our hypothesis.     

Structural Uncertainty and Pollution Control: Optimal Stringency with Unknown Pollution Sources

We relax the common assumption that regulators know the structural relationship between emissions and ambient air quality with certainty. We find that uncertainty over this relationship can manifest as a unique form of multiplicative uncertainty in the marginal damages from emissions. We show how the optimal stringency of environmental regulation depends on this structural uncertainty. We also show how new information, like the discovery of previously unknown emission sources, can counterintuitively lead to increases in both optimal emissions and ambient pollution levels.     

Market Power with Interdependent Demand: Sale of Emission Permits and Natural Gas from Russia

With implementation of the Kyoto Protocol, Russia will most likely be able to exert market power in the emission permit market. But, as Russia is also a big exporter of fossil fuels, the incentives to boost the permit price may be weak. However, a significant share of Russia’s fossil fuel exports is natural gas. If a high permit price boosts the demand for natural gas through substitution from more polluting fuels and thus increase gas profits, this may increase the incentives to exert monopoly power in the permit market. Moreover, a large fossil fuel exporter may use its market position to influence the effective demand for permits. Hence, the relationship between permit income and fossil fuels exports runs in both directions. In this article, we explore the interdependence between the revenues from permit and fossil fuel exports both theoretically and numerically. A computable general equilibrium model suggests the fact that Russia as a big gas exporter has small effect on the incentives to exert monopoly power in the permit market. Moreover, Russia’s monopoly power in the permit market has a small, but non-negligible impact on the optimal level of Russian gas exports.     

An Optimal Ad Valorem Tax/Subsidy with an Output-Based Refunded Emission Payment for Permits Auction in an Oligopoly Market

In this paper, we explores a hybrid mechanism of output-based refunded emission payment and an ad valorem tax/subsidy to remove the distortions emerging in the permit auction market and the product market. We find that first best outcomes can be achieved under such a hybrid mechanism. A clearing price equal to a Pigouvian tax will endogenously result in the permit auction market. Moreover, we extend the analysis to take into consideration the investment in abatement technology.     

排污权交易市场构建中的问题与对策研究

与传统的排污管制、排污收费制度相比,排污权交易在解决环境污染问题方面具有诸多优点,是运用市场机制控制污染的有效手段。然而,构建我国排污权交易市场还面临着认识方面误解、市场要素缺失和政府作用弱化等现实问题。在分析这些现存问题的基础上,提出相应对策,以加快我国排污权交易市场的构建。     

Airing Your Dirty Laundry: A Quick Marketable Pollution Permits Game for the Classroom

In this article, the authors describe a simple classroom game that demonstrates the advantage of tradable emissions permits in regulating environmental pollution. Students take on the role of polluters who must consider the costs of complying with a uniform reduction and a tradable permits program. The class is divided into high-cost polluters and low-cost polluters so students can observe the gains from trade as high-cost students purchase pollution rights from the low-cost students in the tradable permits scenario. A major advantage of the game is that it can be conducted within as little as 20 minutes and does not require that students have prior knowledge of economics or regulatory policies. This makes the game appropriate for economics and noneconomics courses alike.     

Tradable Discharge Permit System for Water Pollution: Case of the Upper Nanpan River of China

A discharge permit system for water pollution of theupper Nanpan River has been tested since 1992. Thispaper proposed the shift of the current non-tradablepermits to tradable permits to attain the samepollution reduction targets at a lower cost. It wasfound that this river appeared good for trading. Apilot trading program for point sources was thenrecommended to a smaller trading zone. There would beten potential trades for chemical oxygen demanddischarge, gaining an annual cost-saving of ChineseYuan 2.4 million, or saving 18.4% of the total annualcost to attain the reduction target without trading.The marginal pollution reduction cost was estimated atChinese Yuan 959 for one kilogram chemical oxygendemand per day. Meanwhile, `without trading' and `withtrading' scenarios would bring about 900.9 kg/day and51.5 kg/day of redundant reduction respectively. Thenet annual benefit arising from trading, about ChineseYuan 1.6 million, would still be significant. At last,the study recommended that compliance monitoring andexecuting institution requirements be kept in mindwhile designing the program. An information systemneeds to be established to provide potentialparticipants relevant information. The method ofpermit allocation and lifespan of permits should alsobe addressed later.     

论我国保险基金进入资本市场的策略选择

本文从三个方面论述了中国保险基金必须加快和更大规模地进入资本市场,这既是保险业摆脱困境的必然选择和惟一出路,更是中国金融市场体系得以完善的必然要求和客观规律。最后在认真分析中国证券市场,特别是股票市场严重缺陷的基础上,提出在当前一段时期,中国保险基金如何进入证券市场的六条可行性的对策思路。     

银行信贷资金进入股票市场的效应分析

银行信贷资金进入股市有助于改善银行资产结构,增强证券公司的实力,实现货币市场与资本市场的对接,最终有助于我国建立现代金融体系.但银行信贷资金入市加大了我国的金融风险和股票市场的泡沫,在一定程度上损害了中小投资者利益,造成了国有资产流失.因此,既要允许银行信贷资金合规有序进入股市,又要加强对银行信贷资金进入股市的监管.     

基于最优货币状况指数的政策评估：方法与应用

最优货币状况指数是以最优货币政策下所选择的各政策工具的实施力度之比作为相应权重而构建的货币状况指数。基于这个定义，本文构建了最优货币状况指数，分析了它在货币政策评估上的应用，得出几点主要结论：首先，不同于一般货币状况指数，最优货币状况指数除受原指数中相关参数的组合影响外，还受政策目标变量实际值与目标值偏离额的影响。其次，最优货币状况指数可以作为衡量货币政策实施效果的判断标准。再次，汇率和信贷政策与通货膨胀的关系及其在政策目标中的相对干预力度决定了名义或实际货币状况指数权重下货币政策的实施效果。     

Pricing Policy Under Double Market Power: Madagascar and the International Vanilla Market

This paper uses a price-leadership model of the international vanilla market to study the welfare consequences of alternative pricing policies for Madagascar, the leader, that also controls domestic production through a single-channel marketing system. Econometric estimates of the model are used for simulations of welfare and revenue changes and internal redistribution of income. Results indicate that Madagascar could have gained between 0.9% and 2.6% of GDP per year on average over the period 1981–91 by following optimal pricing policies, and that producers were overtaxed suggesting that political economy considerations played a role in the pricing decisions.