Article (Scientific journals)
The optimal size of a permit market
Krysiak, Frank C.; Schweitzer, Patrick
2010In Journal of Environmental Economics and Management, 60 (2), p. 133-143
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Keywords :
Tradable permits; Uncertainty; Hot spot; Spatial model; Regulation; Non-uniformly mixed pollutant; Asymmetric information
Abstract :
[en] Regulating the emissions of non-uniformly mixed pollutants with a permit market carries the risk of hot spot formation, which can be reduced by dividing the regulation area into trading zones. The trading zone approach has been extensively discussed for the full-information case. We consider incomplete information concerning the emitters’ abatement costs, their locations, and pollution dispersion. We derive the optimal number of trading zones and the optimal number of permits per zone and analyze under which conditions a system of independent trading zones is superior to other policy measures. Our results show that appropriately sized permit markets are well-suited to regulating non-uniformly mixed pollutants under informational constraints if firms are not too heterogeneous. Only for substantial heterogeneity and a highly non-linear damage function can it be optimal to use command-and-control strategies.
Disciplines :
Special economic topics (health, labor, transportation...)
Identifiers :
UNILU:UL-ARTICLE-2010-598
Author, co-author :
Krysiak, Frank C.;  Department of Business and Economics, University of Basel, Switzerland
Schweitzer, Patrick ;  University of Luxembourg > Interdisciplinary Centre for Security, Reliability and Trust (SNT) ; University of Luxembourg > Faculty of Science, Technology and Communication (FSTC) > Computer Science and Communications Research Unit (CSC)
Language :
English
Title :
The optimal size of a permit market
Publication date :
2010
Journal title :
Journal of Environmental Economics and Management
ISSN :
1096-0449
Publisher :
Elsevier, Amsterdam, Netherlands
Volume :
60
Issue :
2
Pages :
133-143
Peer reviewed :
Peer Reviewed verified by ORBi
Available on ORBilu :
since 20 November 2013

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