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Optimal Design of a Phase-in Emissions Trading Program

Juan-Pablo Montero

Journal of Public Economics, Vol. 75, No. 2, pp. 273-91 (February 2000)

Juan-Pablo Montero, Journal of Public Economics, Vol. 75, No. 2, pp. 273-91 (February 2000)

This paper studies a phase-in emissions trading program with voluntary opt-in possibilities for non-affected firms and derives optimal permits allocations to affected and opt-in firms when the environmental regulator has incomplete information on individual unrestricted emissions and control costs. The regulator faces a tradeoff between production efficiency (minimization of control costs) and information rent extraction (reduction of excess permits allocated to opt-in firms). The first-best equilibrium can be attained if the regulator can freely allocate permits to affected and opt-in firms; otherwise a second-best equilibrium is implemented. The latter is sensitive to uncertainty in control costs and benefits. Copyright 2000 Elsevier Science S.A. All rights reserved. Reprinted with permission from Elsevier Science.

Single copies of the article can be downloaded and printed fromhttp://www.elsevier.nl/cas/tree/store/pubec/sub/2000/75/2/1873.pdf for the reader\'s personal research and study."

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