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Optimal Allocation of Tradable Pollution Rights and Market Structures

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  • Dafna Eshel

Abstract

Tradable environmental rights are increasingly pursed as a regulatory instrument, to control for environmental quality. However, in the presence of market power, regulation through an allocation of tradable rights generally yield inefficient outcomes. This article analyzes the effect of the initial distribution of tradable rights on the firms’ strategies and performance in abatement and production, and proposes an efficient criterion for the allocation of tradable rights among firms with market power and competitive fringe firms. The suggested criterion maximizes efficiency of the market based regulation. A simple numerical example illustrates the theoretical discussion. Copyright Springer Science+Business Media, Inc. 2005

Suggested Citation

  • Dafna Eshel, 2005. "Optimal Allocation of Tradable Pollution Rights and Market Structures," Journal of Regulatory Economics, Springer, vol. 28(2), pages 205-223, September.
    • Handle: RePEc:kap:regeco:v:28:y:2005:i:2:p:205-223
    DOI: 10.1007/s11149-005-3109-5
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    References listed on IDEAS

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    1. Newell, Richard G. & Sanchirico, James N. & Kerr, Suzi, 2005. "Fishing quota markets," Journal of Environmental Economics and Management, Elsevier, vol. 49(3), pages 437-462, May.
    2. Hanley, Nick D & Moffatt, Ian, 1993. "Efficiency and Distributional Aspects of Market Mechanisms in the Control of Pollution: An Empirical Analysis," Scottish Journal of Political Economy, Scottish Economic Society, vol. 40(1), pages 69-87, February.
    3. Fershtman,C. & de Zeeuw,A., 1995. "Tradeable Emission Permits in Oligopoly," Papers 45-95, Tel Aviv - the Sackler Institute of Economic Studies.
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