In this paper, we build upon our previous work (Willett, Caplanova, Sivak, 2013, 2014, 2015) and develop an emission discharge permit system (EDPS) for persistent air pollutants. A persistent air pollutant is a pollutant released in small quantities per unit of activities and per unit of time. Persistent air pollutants are frequently slow to degrade and often result in accumulations of concentrations. In our system the property right traded is an emission discharge permit and the market institution takes the form of a dynamic common-pool market system. In the paper we discuss the individual agent’s demand decisions for emission discharge permits and develop the dynamic common-pool market formulation along with a general set of marginal-cost pricing rules used in this type of the permit trading market. To further deepen the analysis, we introduce a numerical simulation to illustrate the usefulness of this type of permit market design for dealing with specific environmental problems in current societies.
84th International Atlantic Economic Conference
October 05 - 08, 2017 | Montreal, Canada
Emission discharge permit trading and persistent air pollutants: A common-pool market application
Friday, 6 October 2017: 5:45 PM
The early 1960s work of Ronald Coase (1960) provided strong support for the idea of making property rights for environmental assets explicit and transferrable, so that the market could value these property rights. The success of the environmental policy based on property rights, which are traded in a market system, requires that the property rights for environmental assets were well defined, enforceable, and transferable. Next, a reasonably competitive and efficient system must exist, in which interested parties can get together and negotiate trades for these property rights. Finally, there must be a complete set of markets that allows owners of property rights on environmental assets to capture all economically efficient values associated with the use of the property rights being traded. The modern version of Coase’s proposal is the cap and trade policy (Tietenberg, 2006). The property right traded in this system is an emission discharge permit (EDP), and the market process for this property right is an emission discharge permit system (EDPS) (Atkinson, 1983; Atkinson and Tietenberg, 1991; and Tietenberg, 2006).
Friday, 6 October 2017: 5:45 PM
The early 1960s work of Ronald Coase (1960) provided strong support for the idea of making property rights for environmental assets explicit and transferrable, so that the market could value these property rights. The success of the environmental policy based on property rights, which are traded in a market system, requires that the property rights for environmental assets were well defined, enforceable, and transferable. Next, a reasonably competitive and efficient system must exist, in which interested parties can get together and negotiate trades for these property rights. Finally, there must be a complete set of markets that allows owners of property rights on environmental assets to capture all economically efficient values associated with the use of the property rights being traded. The modern version of Coase’s proposal is the cap and trade policy (Tietenberg, 2006). The property right traded in this system is an emission discharge permit (EDP), and the market process for this property right is an emission discharge permit system (EDPS) (Atkinson, 1983; Atkinson and Tietenberg, 1991; and Tietenberg, 2006).