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Lobbying for size and slice of the quota

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  • Pauli Lappi

    (University of Helsinki)

Abstract

The formation and allocation of an emission quota are analyzed in a common agency framework with two stages. First, the principals lobby for the size of the aggregate quota. Second, the principals lobby for the individual slices of the quota. It is shown that the slices are allocated such that the marginal profits of the principals are equalized and that the size of the aggregate quota is either set at the efficient level characterized by the Samuelson’s rule for public goods or distorted from that level. When the quota is distorted from the efficient level it is set such that the aggregate marginal profit is less than the marginal damage, resulting in an overallocation of individual and aggregate quotas. However, efficient level of the quota is obtained in a reasonable special case in which countries take the role of the principals. The results are extended to cover tradable emission permits.

Suggested Citation

  • Pauli Lappi, 2021. "Lobbying for size and slice of the quota," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 28(5), pages 1143-1162, October.
    • Handle: RePEc:kap:itaxpf:v:28:y:2021:i:5:d:10.1007_s10797-021-09684-z
    DOI: 10.1007/s10797-021-09684-z
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    More about this item

    Keywords

    Environmental policy; Emissions trading; Common agency; Political economy; Quotas;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • H40 - Public Economics - - Publicly Provided Goods - - - General
    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General

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