Please use this identifier to cite or link to this item: http://hdl.handle.net/1893/1673
Appears in Collections:Economics Journal Articles
Peer Review Status: Refereed
Title: The optimal initial allocation of pollution permits: a relative performance approach
Authors: Mackenzie, Ian A
Hanley, Nicholas
Kornienko, Tatiana
Contact Email: n.d.hanley@stir.ac.uk
Keywords: permits
pollution
Issue Date: Mar-2008
Publisher: Springer
Citation: Mackenzie IA, Hanley N & Kornienko T (2008) The optimal initial allocation of pollution permits: a relative performance approach, Environmental and Resource Economics, 39 (3), pp. 265-282.
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.
Type: Journal Article
URI: http://hdl.handle.net/1893/1673
DOI Link: http://dx.doi.org/10.1007/s10640-007-9125-4
Rights: The publisher does not allow this work to be made publicly available in this Repository. Please use the Request a Copy feature at the foot of the Repository record to request a copy directly from the author; you can only request a copy if you wish to use this work for your own research or private study.
Affiliation: University of Stirling
Economics
University of Stirling

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