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Bankruptcy risk and the performance of tradable permit markets

Author

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  • John Stranlund

    (University of Massachusetts-Amherst)

  • Wei Zhang

    (University of Massachusetts-Amherst)

Abstract

We study the impacts of bankruptcy risk on markets for tradable environmental and natural resource permits. We show that bankruptcy risk in a competitive market for tradable permits causes an inefficient distribution of these permits among firms. Moreover, the equilibrium distribution of permits is dependent of the initial distribution of permits. Thus, the main reasons for implementing markets for environmental and natural resource rights do not hold when some firms are financially insecure.

Suggested Citation

  • John Stranlund & Wei Zhang, 2008. "Bankruptcy risk and the performance of tradable permit markets," Economics Bulletin, AccessEcon, vol. 17(9), pages 1-9.
    • Handle: RePEc:ebl:ecbull:eb-08q20002
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    References listed on IDEAS

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    Cited by:

    1. John Stranlund & Wei Zhang, 2009. "Bankruptcy Risk, Limited Liability and Imperfectly Enforced Emissions Taxes," Economics Bulletin, AccessEcon, vol. 29(4), pages 3134-3146.
    2. Stranlund, John K. & Zhang, Wei, 2008. "Bankruptcy Risk and Imperfectly Enforced Emissions Taxes," Working Paper Series 42127, University of Massachusetts, Amherst, Department of Resource Economics.

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    More about this item

    Keywords

    Limited liability;

    JEL classification:

    • Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation

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