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Appears in Collections:Economics Working Papers
Peer Review Status: Unrefereed
Title: The effects of rent seeking over tradable pollution permits
Author(s): Hanley, Nicholas
Mackenzie, Ian A
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Citation: Hanley N & Mackenzie IA (2010) The effects of rent seeking over tradable pollution permits. Stirling Economics Discussion Paper, 2010-02.
Keywords: tradable permit market
rent seeking
initial allocation
JEL Code(s): D72
Issue Date: Jan-2010
Series/Report no.: Stirling Economics Discussion Paper, 2010-02
Abstract: The establishment of a tradable permit market requires the regulator to select a level of aggregate emissions and then distribute the associated permits (rent) to specific groups. In most circumstances, these decisions are often politically contentious and frequently influenced by rent seeking behaviour. In this paper, we use a contest model to analyse the effects of rent seeking effort when permits are freely distributed (grandfathered). Rent seeking behaviour can influence both the share of permits which an individual firm receives and also the total supply of permits. This latter impact depends on the responsiveness of the regulator to aggregate rent seeking effort. Using a three-stage game, we show that rent seeking can influence both the distribution of rents and the ex post value of these rents, whilst welfare usually decreases in the responsiveness of the regulator.
Type: Working or Discussion Paper
Affiliation: Economics
University of Stirling

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