The optimal initial allocation of pollution permits: a relative performance approach

MacKenzie, Ian A., Hanley, Nick and Kornienko, Tatiana (2008) The optimal initial allocation of pollution permits: a relative performance approach. Environmental and Resource Economics, 39 3: 265-282. doi:10.1007/s10640-007-9125-4


Author MacKenzie, Ian A.
Hanley, Nick
Kornienko, Tatiana
Title The optimal initial allocation of pollution permits: a relative performance approach
Journal name Environmental and Resource Economics   Check publisher's open access policy
ISSN 0924-6460
1573-1502
Publication date 2008-03
Sub-type Article (original research)
DOI 10.1007/s10640-007-9125-4
Volume 39
Issue 3
Start page 265
End page 282
Total pages 18
Place of publication Dordrecht, Netherlands
Publisher Springer
Language eng
Abstract The initial allocation of pollution permits is an important aspect of emissions trading schemes. We generalize the analysis of Böhringer and Lange (2005, Eur Econ Rev 49(8): 2041–2055) to initial allocation mechanisms that are based on inter-firm relative performance comparisons (including grandfathering and auctions, as well as novel mechanisms). We show that using firms’ historical output for allocating permits is never optimal in a dynamic permit market setting, while using firms’ historical emissions is optimal only in closed trading systems and only for a narrow class of allocation mechanisms. Instead, it is possible to achieve social optimality by allocating permits based only on an external factor, which is independent of output and emissions. We then outline sufficient conditions for a socially optimal relative performance mechanism.
Keyword Relative performance
Initial allocation
Pollution permits
Auctions
Q-Index Code C1
Q-Index Status Provisional Code
Institutional Status Non-UQ

Document type: Journal Article
Sub-type: Article (original research)
Collection: School of Economics Publications
 
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Created: Wed, 24 Oct 2012, 15:25:26 EST by Alys Hohnen on behalf of School of Economics