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Community-Based Tradable Permits for Localized Pollution

Author

Listed:
  • Peifang Yang

    (China University of Petroleum (Beijing))

  • Daniel T. Kaffine

    (University of Colorado Boulder)

Abstract

This paper considers the assignment of tradable permits—representing property rights of an environmental good—to community members who are harmed by pollution generated by firms. These community members can in turn sell permits to polluters according to their personal preferences. For a special case with a sole household, market transactions between the household and polluters achieve an efficient pollution level. However, for a group of households, the decentralized market solution fails to yield social efficiency because of competitive consumption of the environmental goods. We design a revenue-sharing mechanism akin to unitization, under which market transactions also achieve efficient resource allocation. Importantly, in some cases, efficiency can be achieved even when regulators are ignorant of the private valuation of the environmental good.

Suggested Citation

  • Peifang Yang & Daniel T. Kaffine, 2016. "Community-Based Tradable Permits for Localized Pollution," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 65(4), pages 773-788, December.
    • Handle: RePEc:kap:enreec:v:65:y:2016:i:4:d:10.1007_s10640-015-9925-x
    DOI: 10.1007/s10640-015-9925-x
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    Cited by:

    1. Bouwe R. Dijkstra, 2022. "Payments from Households to Distant Polluting Firms," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 82(3), pages 681-715, July.

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