The effects of rent seeking over tradable pollution permits

Hanley, Nick and MacKenzie, Ian A. (2010) The effects of rent seeking over tradable pollution permits. BE Journal of Economic Analysis and Policy, 10 1: 56.1-56.26. doi:10.2202/1935-1682.2497

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Author Hanley, Nick
MacKenzie, Ian A.
Title The effects of rent seeking over tradable pollution permits
Journal name BE Journal of Economic Analysis and Policy   Check publisher's open access policy
ISSN 1935-1682
Publication date 2010-01-01
Sub-type Article (original research)
DOI 10.2202/1935-1682.2497
Open Access Status File (Publisher version)
Volume 10
Issue 1
Start page 56.1
End page 56.26
Total pages 26
Place of publication Berlin, Germany
Publisher Walter de Gruyter
Language eng
Abstract The establishment of a tradable permit market requires the regulator to select a level of aggregate emissions and then distribute the associated permits to specific groups. Both these decisions create opportunities for rent seeking. In this paper, we use a contest model to analyse the incentives to rent seek for pollution permits and to analyse the consequences for social welfare. We find differences in firms' rent-seeking choices compared to a conventional rent-seeking contest. We see that a fundamental aspect of firms' incentives to rent seek depends on the market value of the permits, that is, the value of the ex post reallocated rents. This impact depends on the responsiveness of the regulator to aggregate rent-seeking effort. The responsiveness, in some cases, may improve welfare by reducing the per-unit value of permits, which may lower the rent-seeking effort more than it increases the damages experienced from the additional emissions.
Keyword Tradable permit market
Rent seeking
Initial allocation
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: Fri, 09 Nov 2012, 02:12:47 EST by Alys Hohnen on behalf of School of Economics