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Optimal Size of a Permit Market
Project funded by own resources
Project title Optimal Size of a Permit Market
Principal Investigator(s) Krysiak, Frank Christian
Organisation / Research unit Departement Wirtschaftswissenschaften / Umweltökonomie (Krysiak)
Project start 01.01.2008
Probable end 01.08.2010
Status Completed

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.

Keywords Permit Trading, Uncertainty, Hot Spots, Trading Zones
Financed by University funds

Published results ()

  ID Autor(en) Titel ISSN / ISBN Erschienen in Art der Publikation
404894  Krysiak, Frank C.; Schweitzer, Patrick  The optimal size of a permit market  0095-0696  Journal of environmental economics and management  Publication: JournalArticle (Originalarbeit in einer wissenschaftlichen Zeitschrift) 

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