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Distributing pollution rights in cap-and-trade programs: are outcomes independent of allocation?

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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 permit markets nearly eliminate transaction costs, the permit market equilibrium will be independent of how the permits are initially distributed among firms. Testing the independence of firms' permit allocations and emissions is difficult because of endogeneity and omitted variable bias. We exploit the random assignment of firms to different permit allocation cycles in Southern California's RECLAIM Program to test for a causal relationship between facility-level emissions and initial permit allocations. Our primary finding is that a null hypothesis of zero effect cannot be rejected.

Suggested Citation

  • Fowlie, Meredith & Perloff, Jeffrey M., 2008. "Distributing pollution rights in cap-and-trade programs: are outcomes independent of allocation?," CUDARE Working Papers 47002, University of California, Berkeley, Department of Agricultural and Resource Economics.
    • Handle: RePEc:ags:ucbecw:47002
    DOI: 10.22004/ag.econ.47002
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    More about this item

    Keywords

    Environmental Economics and Policy;

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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