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The Effect of Pollution Permit Allocations on Firm-Level Emissions

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  • Fowlie, Meredith
  • Perloff, Jeffrey M.

Abstract

According to the Coase theorem, if property rights to pollute are clearly established and emissions markets nearly eliminate transaction costs, the market equilibrium will be independent of how the permits are initially allocated across firms. Using panel data from Southern California's RECLAIM program, we find that initial allocations are a statistically significant determinant of firm-level emissions. This relationship between allocation and emissions is stronger among firms with relatively high transaction costs. Thus, care must be exercised in the initial allocation of permits to ensure efficiency.

Suggested Citation

  • Fowlie, Meredith & Perloff, Jeffrey M., 2004. "The Effect of Pollution Permit Allocations on Firm-Level Emissions," CUDARE Working Papers 25116, University of California, Berkeley, Department of Agricultural and Resource Economics.
    • Handle: RePEc:ags:ucbecw:25116
    DOI: 10.22004/ag.econ.25116
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