bankable permits for the control of environmental pollution abstract intertemporal trading of emission permits banking is often identified as one of three promising market mechanisms for controlling pollution along with averaging and trading surprisingly the efficiency properties of permit banking systems have not been investigated using a simple optimal control model this paper investigates firms incentives for banking or borrowing emission permits and compares the emission and output streams firms would choose with the socially optimal solution we find that in many cases firms will suboptimally choose excessive damage and output levels in early periods and correspondingly too few in later periods if given the opportunity to freely move emissions between time periods we propose a simple alternative trading scheme we term modified banking that counters this problem and should be no more difficult for an environmental authority to implement than a straigth banking system

equilibrium properties of auctions and alternative procedures for allocating transferable permits abstract this paper examines the equilibrium properties of a range of auctions and related procedures placing emphasis on the types of procedures that are likely to be of special interest in environmental management applications nash equilibrium properties are first derived for a very general class of auctions for multiple homogeneous or heterogeneous objects or permits next it is shown that given appropriate assumptions three broad classes of public allocation procedures that do not generate revenues for the government would yield participants equal expected profits these classes are 1 incentive compatible auctions where bidders receive equal lump sum refunds 2 non incentive compatible procedures where refunds are a function of participants bids and 3 free initial distribution of permits on a lump sum basis followed by trading via a competitive market the applicability of the general results is then demonstrated by examining the particular non incentive compatible fair division procedure originally suggested by knaster finally implications of the theoretical results for applications including the allocation of transferable discharge permits and water rights are discussed

unintended consequences of price controls an application to allowance markets abstract price controls established in a cap and trade allowance market are intended to reduce cost uncertainty by constraining allowance prices between a ceiling and floor however they could provide opportunities for strategic actions by firms that would lower government revenue and increase emissions in particular when the ceiling price is supported by introducing new allowances into the market firms could choose to buy allowances at the ceiling price regardless of the prevailing market price in order to lower the equilibrium price of all allowances those purchases could either be transacted by firms intending to manipulate the market price or be induced through the introduction of inaccurate information about the cost of emissions abatement theory and simulations using allowance elasticity estimates for u s firms suggest that the manipulation could be profitable under the stylized setting and assumptions evaluated in the paper although in practice many other conditions will determine its use

using contests to allocate pollution rights in this paper we advocate a new initial allocation mechanism for a tradable pollution permit market we outline a permit allocation contest pac that distributes permits to firms based on their rank relative to other firms this ranking is achieved by ordering firms based on an observable external action where the external action is an activity or characteristic of the firm that is independent of their choice of emissions in the tradable permit market we argue that this mechanism has a number of benefits over auctioning and grandfathering using this mechanism efficiently distributes permits allows for the attainment of a secondary policy objective and has the potential to be more politically appealing than existing alternatives

contractual design and networks performance empirical evidence from franchising this article deals with the links between networks performance and the design of vertical contracts it provides evidence broadly consistent with the hypothesis that within franchising systems constraining contracts for the retailers favour a better performance at the network level

market power in emission permit markets theory and evidence from the eu ets a well known result about market power in emission permit markets is that efficiency can be achieved by full free allocation to the dominant firm i show that this result breaks down when taking the interaction between input and output markets into account even if the dominant firm perceives market power in the permit market alone i then examine the empirical evidence for price manipulation by the ten largest electricity firms during phase i of the eu ets i find that some firms excess allowance holdings are consistent with strategic price manipulation and that they cannot be explained by price speculation or by precautionary purchases to insure against uncertain future emissions my results suggest that market power is likely to be an empirically relevant concern during the early years of emission permit markets

integrating technology traits and producer heterogeneity a mixed multinomial model of genetically modified corn adoption this article proposes a model of technology adoption that integrates demand for individual traits of new technologies with the potential for heterogeneity based on farm and farmer characteristics the model is applied to recent genetically modified corn adoption data from minnesota and wisconsin farmers using a mixed multinomial logit mmnl model to estimate the effects of traits and farm and farmer characteristics on adoption outcomes this approach allows explicit recovery of estimates of farmers shadow prices for individual technology traits results show the importance of producer and regional heterogeneity in preferences for seed traits

emission trading with fiscal externalities the case for a common carbon tax for the non ets emissions in the eu a government is fiscally constrained if it is unable to raise sufficient tax revenue to finance the first best level of public spending when involved in emission trading a fiscally constrained government will potentially seek to close its fiscal gap through emission permit sales this fiscal incentive therefore generates a fiscal externality in the permit market that is endogenous to the extent of fiscal constrainedness among the participating countries our theory explains how and when fiscal externalities may be expected to arise moreover we show that in a permit market equilibrium with fiscal externalities the initial allocation of emission permits between countries will affect 1 the price of emission permits 2 the global distribution of abatement effort and 3 total greenhouse gas mitigation costs this is contrary to the textbook model of emission permit markets our findings are especially relevant for the eu which is about to allow for trading in emission rights between eu member countries for all emissions outside the european emissions trading system

international emissions trading under the kyoto protocol credit trading abstract the kyoto protocol allows emissions trading between countries the protocol does however not specify how such trade is to take place so far two options have been discussed in the literature government trading and permit trading this paper discusses a third option credit trading credit trading is based on abatement projects but differs from joint implementation in that it does not require direct foreign investment furthermore credit trading can be implemented both domestically and internationally the main advantages of credit trading are that it excludes trading in hot air while it still makes trade between private entities possible however the environmental effectiveness is doubtful especially when it is based on relative targets the paper shows that several interest groups prefer credit trading based on relative targets to permit trading also governments may have reasons to prefer credit trading to permit trading hence the political acceptability of credit trading is larger than that of permit trading making it more likely that credit trading will be allowed than permit trading

ethical influences on the evolution of the us tradable permit approach to air pollution control abstract in 1975 a novel approach to air pollution control was implemented in the usa from this rather humble beginning this approach has now been expanded rather dramatically in several different directions this paper describes this evolution shows how the design of the system has been adapted to accommodate ethical concerns and describes how the latest versions of this approach have transformed the regulatory process which spawned the approach in the first place

investment decisions and transferable discharge permits an empirical study of water quality management under policy uncertainty the problem of investiment decisions for sources participating in transferable discharge permit tdp markets has not received much attention one way tdps offer potential savings is with their ability to influence development in a region static models have assessed the potential savings of tdps but do not explicitly consider investment decisions thus they do not capture this long run role nor that of policy uncertainty and tend to understate both the cost saving potential and the difficulty in achieving it this paper addresses both problems by emphasizing the temporal dimension of tdps a two period investment model investigates the magnitude of these potential savings and the effects of two types of policy uncertainty upon expected gains from permit trading

ex post efficient permit markets a detailed analysis this paper provides a detailed analysis of ex post efficient permit markets after a short review of institutional designs that can achieve ex post efficiency under uncertainty and asymmetric information we analyze the effects of an ex post efficient regulation on the expected costs of the regulated firms on their investment behavior and on the incentives for strategic behavior on imperfectly competitive permit markets also we inquire about the budget effects of the regulation our results show that ex post efficient permit markets have considerable benefits beside the direct increase in expected social welfare

equilibrium price dynamics of emission permits this article presents a stochastic equilibrium model for environmental markets that allows us to study the characteristic properties of emission permit prices induced by the design of today s cap and trade systems we characterize emission permits as highly nonlinear contingent claims on economy wide emissions and reveal their hybrid nature between investment and consumption assets our model makes predictions about the dynamics and volatility structure of emission permit prices the forward price curve and the implications for option pricing in this market empirical evidence from existing emissions markets shows that the model explains the stylized facts of emission permit prices and related derivatives

the exercise of market power in laboratory experiments douglas d davis and charles a holt march 1998 introduction many aspects of antitrust policy are influenced by the possibility that sellers in concentrated markets may have the power to raise prices above competitive levels of course anyone can raise price so the issue is whether a change in structure e g a merger will allow one or more sellers to raise price profitably a price increase by one seller diverts sales to others so a firm is more likely to have market power when its competitors have limited capacity to expand their sales thus a merger that reduces competitors capacity may create market power in laboratory experiments any treatment that reassigns units of capacity from one seller to another may create or destroy market power even if the aggregate supply curve is unchanged for example giving one seller a relatively large endowment of infra marginal low cost units may make it less risky for this seller to raise price and forego the sale of high cost units thus it is not surprising that experiments with apparently similar supply and demand structures may yield different price outcomes as discussed below there are a number of other ways in which structural changes can affect the degree of power that sellers enjoy market power can also be sensitive to the trading institution and this is the context that power issues first arose in experimental economics for example the public posting of uniform prices in a posted offer auction eliminates the incentive to offer discounts on marginal units that arises in a double auction in fact smith 1981 found that even monopolists are sometimes unable to maintain prices above competitive levels in double auctions whereas supra competitive prices are the norm in postedoffer monopolies similarly holt langan and villamil 1986 found that sellers in concentrated double auctions were sometimes able to raise prices but that prices fell to competitive levels in about half of the sessions despite the high concentration of seller capacity davis and williams 1991 replicated the holt langan and villamil results for double auctions and then used the same market

on information and innovation diffusion a bayesian approach learning and information accumulation are hypothesized to play a major role in innovation diffusion for instance hiebert argues that the probability distributions of new and unfamiliar technological parameters as perceived by farmers will shift over time due to learning and experience probabilities will be redistributed from lower to higher payoffs this induces farmers to increase their use of the innovation which was new seed varieties in the hiebert model the model presented by kislev and shchoribachrach introduces in the new technology production function an efficiency factor which is positively related to learning it is approximated by the cumulative over time output produced with the innovative technology as learning increases the innovation becomes advantageous for more and more producers who then adopt it in a similar vein feder and o mara construct a diffusion process where uncertainty about an innovation high yielding varieties hyv depends on cumulative area allocated to hyv this represents experience with the accumulation of experience uncertainty declines and the innovation is adopted by an increasing proportion of producers these models produce sensible and empirically valid hypotheses about the dynamics of innovation diffusion however the accumulation of information which is the basic driving element in these models is not treated explicitly thus the use of cumulative output or a cumulative input as an index of learning while plausible still requires formal justification one possibility is a bayesian learning process indeed the work by o mara 1971 1981 and more recently by lindner fischer and pardey have utilized bayes theorem to characterize an individual farmer s adoption behavior

adoption of a politicized technology bst and wisconsin dairy farmers technologies that are the focus of extensive public debate prior to commercialization may have diffusion paths which are distinct from the classic sigmoid shape often used by economists descriptive and econometric analysis of ex ante and ex post data on bovine somatotropin use by wisconsin dairy farmers reveal that this controversial technology has a relatively low adoption rate and little prospect for adoption growth in the near future further research on potential adoption outcomes for technologies that are politicized prior to commercialization could improve economists predictive capacities

an experimental examination of vertical control and cost predation abstract in recent years there has been renewed interest in and concern about firms use of vertical control as a way to exert market power such behavior could be used to gain a competitive advantage over rivals in input and or output markets this paper uses laboratory experimental methods to examine three questions i is anti competitive behavior by a dominant firm in input markets an observable behavior ii is cost predation an observable laboratory phenomenon and iii if such behaviors are observed what are the efficiency consequences results of this dominant firm experiment indicate that all three questions can be answered in the affirmative and the negative efficiency consequences can be profound

auctions or grandfathering the political economy of tradable emission permits despite the prevalence of grandfathered permits we still observe that a hybrid policy in which a fraction of initial emission permits is distributed through auctions is adopted in some cases we also observe that some polluting industries support auctioned permits and that most environmental groups support grandfathered permits this paper attempts to explain these phenomena from the perspective of political economy and investigates the conditions under which grandfathering auctions or a hybrid instrument will be the equilibrium policy by constructing a two stage lobbying game in which the type of policy instrument auction grandfathering or a hybrid instrument is determined in the first stage and then the number of permits is decided in the second stage we highlight the strategic interaction of the lobbying activities between the two stages in explaining the behavior of the lobbying groups

strategic state level environmental policy with asymmetric pollution spillovers this paper examines the strategic behavior of state level utility regulators in the context of the federal tradable emissions permits market when state to state pollution spillovers are asymmetric strategic behavior is possible because a state s environmental policy indirectly affects the price of permits and therefore abatement in other states we show that the optimal pollution penalty is comprised of two parts i a pigouvian tax adjusted for state to state spillovers and ii an optimal tariff designed to improve the terms of trade in permits generally abatement costs are not minimized and the outcome is pareto inefficient regardless of the size of the market 2001 elsevier science b v all rights reserved

stochastic pollution costly sanctions and optimality of emission permit banking abstract this paper identifies a new economic motive for pollution regulations that allow polluting firms to bank and borrow emission permits over time when aggregate pollution is stochastic an intertemporal permit trading regime can provide firms with efficient incentives for pollution abatement without the need for costly government enforcement actions that would otherwise be required

the problem of the commons still unsettled after 100 years the problem of the commons is more important to our lives and thus more central to economics than a century ago when katharine coman led off the first issue of the american economic review as the us and other economies have grown the carrying capacity of the planet in regard to natural resources and environmental quality has become a greater concern particularly for commonproperty and open access resources the focus of this article is on some important unsettled problems of the commons within the realm of natural resources there are special challenges associated with renewable resources which are frequently characterized by open access an important example is the degradation of openaccess fisheries critical commons problems are also associated with environmental quality a key contribution of economics has been the development of market based approaches to environmental protection these instruments are key to addressing the ultimate commons problem of the twenty first century global climate change jel q15 q21 q22 q25 q54

incentives and effects of no lose targets to include non annex i countries in global emission reductions we analyze the potential of no lose targets used as an instrument to integrate non annex i countries in global emission reduction efforts we set up a game theoretical model to derive the participation conditions for a non annex i country and evaluate the effect of a no lose target on the reduction of global emissions our analyses show that meaningful contributions from non annex i countries are possible but their contribution to global emission reductions is limited and depends on several factors ambitious targets for the annex i countries are a precondition further determining factors are differences in the abatement potentials between annex i and non annex i countries and market power on the certificate market nonetheless in contrast to other funding mechanisms no lose targets rather than requiring additional funding can actually reduce costs for the annex i countries

assessing the relative merits of development charges and transferable development rights in an uncertain world traditionally regulatory instruments have been used to achieve planning objectives however emerging market based policy instruments such as transferable development rights a quantity based app

a note on market power in an emission permits market with banking in this paper we investigate the effect of market power on equilibrium path of an emission permits market in which firms can bank current permits for use in later periods in particular we study the market equilibrium for a large potentially dominant firm and competitive fringe with rational expectations we characterize the equilibrium solution for different permits allocations and discuss the large firm s stock holding constraints needed for credible market manipulation

a trading ratio system for trading water pollution discharge permits abstract the fact that water flows to the lowest level uni directionally is a very specific and useful property of water by utilizing this property we design a trading ratio system trs of tradable discharge permits for water pollution control such a trading ratio system has three main characteristics 1 the zonal effluent cap is set by taking into account the water pollutant loads transferred from the upstream zones 2 the trading ratios are set equal to the exogenous transfer coefficients among zones and 3 permits are freely tradable among dischargers according to the trading ratios this paper shows that the trs can take care of the location effect of a discharge and can achieve the predetermined standards of environmental quality at minimum aggregate abatement costs problems with hot spots and free riding can be avoided and the burdens on both dischargers and the environmental authority should be relatively light

incentive conflicts and contractual restraints evidence from franchising abstract this study uses agency theory to develop testable implications about three provisions commonly observed in franchise contracts 1 restrictions on passive ownership 2 area development plans and 3 mandatory advertising expenditures the primary hypothesis is that these provisions are most likely when there are significant externalities among the units within the franchise system the evidence based on a large sample of franchise contracts is generally consistent with this hypothesis the evidence also suggests that these incentive instruments are complements in contrast to the theory most of the results do not support the hypothesis that the percentage of company owned units is related to externalities within the system franchisee risk aversion and or wealth constraints appear more important while the study focuses on franchising the results provide insights into related provisions in other contracts

an international policy architecture for the post kyoto era in february 2005 the kyoto protocol to the united nations framework convention on climate change came into force but without participation by the united states its impacts on emissions of greenhouse gases including carbon dioxide co2 the primary anthropogenic driver of climate change will be trivial but scientific robert t watson 2001 and economic charles d kolstad and michael a toman 2001 analyses point to the need for a credible international approach because the kyoto protocol s ambitious targets apply only to the short term 2008 2012 and only to industrialized nations the agreement will impose relatively high costs and generate only modest short term benefits while failing to provide a real solution joseph e aldy et al 2003 for these reasons most economists see the agreement as deeply flawed richard n cooper 1998 david g victor 2001 warwick j mckibbin and peter j wilcoxen 2002 although some see it as an acceptable first step axel michaelowa 2003 virtually all agree however that the protocol is not sufficient to the overall challenge we describe the basic features of a postkyoto international global climate agreement which addresses three crucial questions who when and how the respective elements are first a means to ensure that key nations industrialized and developing are involved second an emphasis on an extended time path of action employing a cost effective pattern over time and third inclusion of market based policy instruments i who expand participation to include all key countries

international emissions trading with endogenous allowance choices abstract this paper compares endogenous choices of tradable and non tradable emission allowances by non cooperative countries i find that the cost savings of trading do not necessarily lead to less pollution in particular environmentally more concerned countries usually choose less allowances if these are tradable but this may be offset by the choice of more allowances on the side of environmentally less concerned countries moreover if the establishment of a trading system requires the unanimous approval of all countries there may be no agreement on trading even if it were to lead to less pollution overall conversely a trading system may find unanimous approval even if it induces more pollution

further results on permit markets with market power and cheating abstract this paper examines a market for pollution permits in which one firm has market power and one or more firms is noncompliant i show that the firm with market power may choose to hold more permits than it needs effectively retiring permits from the market i also show that some noncompliance may be socially desirable because it can mitigate the distortion caused by market power similarly some degree of market power may be socially desirable because it can in turn mitigate the distortion caused by noncompliance

auction design for the allocation of emission permits in the presence of market power to the extent that emission permits have been allocated using market mechanisms this has been done using a sealed bid auction design typically with discriminatory prices however several authors have recommended the ascending auction format basically two competing ascending auction designs have been suggested the standard ascending auction with clock or demand schedules or an alternative ascending clock implementation of vickrey pricing the latter design was introduced as a response to problems of bid shading under the sealed bid and the standard ascending auction format the purpose of this paper is to investigate the allocation of permits under these two alternative mechanisms the auction process and the resulting market outcome in the presence of oligopolistic competition are simulated in this setting it is not obvious that bid shading is the optimal strategy under the standard design nor is it obvious that sincere bidding is the optimal strategy under the alternative ascending auction design the alternative auction format makes it less costly to pursue a strategy to increase market shares through the acquisition of emission permits thus increasing the competitor s costs leading to overbidding as the optimal strategy

incremental and average control costs in a model of water quality trading with discrete abatement units this paper answers three questions related to the discrete nature of pollution abatement i does a source s incremental control cost as defined by the u s environmental protection agency necessarily exceed its average control cost ii is incremental control cost a better approximation of a source s willingness to pay for abatement credits than average control cost and iii exactly how does trading in discrete and continuous abatement markets differ we find that the answer to the first two questions are both no suggesting that the u s environmental protection agency needs to refine its reliance on incremental control cost as the sole measure upon which to assess the financial feasibility of water quality trading in answer to the third question we show that the outcome of bilateral trading in the presence of discrete abatement is determined by comparing the gains from trade associated with the full sequence of possible sunk cost trading scenarios for the most common case where trading partners average control cost curves cross the trading outcome with discrete abatement is inherently sensitive to the initial allocation of abatement responsibilities

the tradable permits approach to protecting the commons lessons for climate change tradable permit approaches for rationing access to the commons have been applied to many different types of resources in many different countries this essay reviews the experience with three main applications of tradable permit systems air pollution control water supply and fisheries management as well as some unique related programmes the purpose of the review is to draw together what we have learned about tradable permits in practice that might offer some useful insights for the implementation of the three tradable permit mechanisms that are part of the kyoto protocol copyright 2003 oxford university press

the dynamics of agricultural biotechnology adoption lessons from series rbst use in wisconsin 1994 2001 this article exploits panel data from wisconsin dairy farmers to examine the dynamics of recombinant bovine somatotropin rbst adoption and to identify the characteristics that distinguish among nonadopters disadopters and early and late adopters panel methods are used to control for omitted variables and endogenous regressors that call into question coefficient estimates derived from cross section adoption models the results however confirm previous findings that larger farms with complementary feeding technologies are more likely to adopt rbst nonadopters appear quite unlikely to become adopters and rbst adoption will remain at rather moderate levels in wisconsin

permit banking in emission trading competition arbitrage and linkage abstract several existing or proposed climate policies have considered bankable permits in a cap and trade c t program that covers beyond a single sector e g electric power or allows the program to link to external c t programs in other regions this paper develops a model of permit banking under imperfect competition and imperfect inter temporal arbitrage in which the firms in one dominant sector can exert market power in both product and permit markets while those in other sectors or linked programs are perfectly competitive a simple analytical model is developed to generate contestable hypothesis we further extend the model to account for the physical power system institutional rules and market conditions and then apply it to the pennsylvania jersey maryland pjm market we show that if the dominant firm has market power then the permit price rises at a higher rate than the discount rate contrary to perfectly competitive permit market where the permit price rises at the discount rate following the classic hotelling s rule furthermore under a declining emissions cap system with the permits front loaded in early time periods the dominant firm has an incentive to suppress the permit prices monopsony when buying the permits in early periods and then inflate the permit prices monopoly when selling them in later periods numerical results of the pjm case are consistent with the analytical conclusion

the design of a dynamic tradeable quota system under market imperfections abstract market power within a dynamic system of tradeable quotas with banking and borrowing of quotas leads to a nonoptimal distribution of abatement across agents in this paper we introduce a quota system that may reduce the efficiency loss from market power and thereby result in a distribution of abatement across agents that is closer to a cost effective outcome however this system will in general lead to a nonoptimal distribution of abatement across periods hence we may face a trade off between a cost effective distribution of abatement across periods and reduced adverse effects of market power

exclusionary manipulation of markets for pollution rights abstract strategic price manipulation can affect the distribution of transferable pollution rights across polluters and the efficiency of pollution control efforts prior research has concentrated on market manipulation by firms seeking only to minimize the sum of pollution rights costs and pollution abatement costs in this paper we explore the potential for the exclusionary manipulation of pollution permit markets intended to drive up the costs of one s rivals and we distinguish between the resource allocation effects of exclusionary manipulation and cost minimizing manipulation we find that exclusionary manipulation can sometimes worsen and sometimes ameliorate the abatement inefficiency which occurs under cost minimizing manipulation and that an overbuying rule can obviate or at least limit damages from this form of strategic behavior

the welfare effects of allowance banking in emissions trading programs permitting allowance banking in emissions trading programs can reduce expected compliance costs by giving capped firms flexibility to adjust the time path of abatement and to hedge against future uncertainty recent literature suggests that this compliance cost dividend is significant fell and morgenstern environ resour econ 47 275 297 2010 allowance banking may yield an environmental dividend a if the growth rate of marginal damages from emissions is less than the discount rate and b if emissions are lower in the short run as firms bank permits for use in later periods a discrete stochastic dynamic programming model is considered to simulate the two dividends of allowance banking in the context of the most recent federal united states greenhouse gas cap and trade legislation simulation results show that under a range of parameter values the environmental dividend has the same order of magnitude as the compliance cost dividend under the central set of parameters allowance banking increases expected present value of benefits by about 350 million dollars per year of the program the environmental dividend however is completely eliminated if capped firms can borrow permits from future periods without limit

environmental regulation a value theoretic and class based analysis following a value theoretic and class based approach it is argued in this paper that ecological problems are inseparably linked to the process of extracting surplus value in capitalism and owing to their adverse impacts instigate struggles over the appropriation of nature these struggles fought within and outside the state by competing agents shape environmental regulation in particular taxes permits command and control measures and subsidies affect prices profits and rents and have class and other social implications evidence of current environmental regulation shows that it takes places under the great influence of capitalist concerns

multi sector model of tradable emission permits this paper presents a multi sector model of tradable emission permits which includes oligopolistic and perfectly competitive industries the firms in oligopolistic industries are assumed to exercise market power in the tradable permit market as well as in the product market specifically we examine the effects of the initial permit allocation on the equilibrium outcomes focusing on the interaction among these product and permit markets it is shown that raising the number of initial permits allocated to one firm in an oligopolistic industry increases the output produced by that firm under certain conditions raising a clean less polluting firm s share of the initial permits can lead to reductions in both the product and permit prices we discuss criteria for the socially optimal allocation of initial permits considering the trade off between production inefficiency and consumer benefit

tradable quota taxation and market power abstract we investigate how corrective taxation can improve the efficiency properties of tradable quota systems affected by market power indeed we show that when there is a dominant firm in the tradable quota market the regulator can set an ad hoc taxation on firms traded quotas that restores cost effectiveness without driving the dominant firm s net demand to zero achieving cost effectiveness with market power and quota taxation implies some costs in terms of tax revenue that however can be justified by the corresponding reduction of compliance costs moreover we see that there may be cases where all firms result to be better off after the implementation of corrective taxation

fishing quota markets abstract in 1986 new zealand responded to the open access problem by establishing the world s largest individual transferable quota itq system using a 15 year panel dataset from new zealand that covers 33 species and more than 150 markets for fishing quotas we assess trends in market activity price dispersion and the fundamentals determining quota prices we find that market activity is sufficiently high in the economically important markets and that price dispersion has decreased we also find evidence of economically rational behavior through the relationship between quota lease and sale prices and fishing output and input prices ecological variability and market interest rates controlling for these factors our results show a greater increase in quota prices for fish stocks that faced significant reductions consistent with increased profitability due to rationalization overall this suggests that these markets are operating reasonably well implying that itqs can be effective instruments for efficient fisheries management

organizational choices and performance in distribution systems this article studies the performance of distribution networks as the result of a range of organizational choices the analytical part of the article surveys the vast literature devoted to franchising and dual distribution from this framework several testable propositions linking network performance to organizational choices are derived three complementary criteria of performance are taken into account the internationalization rate the expansion rate and the market share this article provides evidence for the simultaneity between these performance criteria analytically related as indicators of the network commercial performance thus the econometrical model is defined as a system of simultaneous equations free of endogeneity regarding the explanatory variables the estimations on recent french data obtained using the three stage least squares method provide robust results and show that the type of distribution network the number of company owned outlets in the network the type of sector and the

carbon trading across sources and periods constrained by the marrakesh accords abstract we examine the potential effects on permit prices and abatement costs of four compliance rules governing emissions trade across sources and periods in the kyoto protocol the banking rule that allows excess permits to be used later the restoration rate rule that penalizes borrowing the commitment period reserve rule that limits sales and finally the suspension rule that restricts borrowing and sales our framework is a two period model where parties may be out of compliance in the kyoto period but are assumed to comply at a later time under varying assumptions about market power and us participation we find that the rules may have pronounced effects on individual costs but overall efficiency is not severely affected

market power and transferable property rights the appeal of using markets as a means of allocating scarce resources stems in large part from the assumption that a market will approximate the competitive ideal when competition is not a foregone conclusion the question naturally arises as to how a firm might manipulate the market to its own advantage this paper analyzes the issue of market power in the context of markets for transferable property rights first a model is developed that explains how a single firm with market power might exercise its influence this is followed by an examination of the model in the context of a particular policy problem the control of particulate sulfates in the los angeles region

intertemporal emission trading with a dominant agent how does a restriction on borrowing affect efficiency in this paper we analyze how restricting intertemporal trading by prohibiting borrowing of emissions permits affects the ability of a dominant agent to exploit its market power we show that the monopolist could take advantage of the constraint on borrowing by not distributing the sale of permits cost effectively across periods furthermore we show that a constant present value price over time does not imply a cost effective distribution of abatement permit sales across periods

the kyoto protocol market power and enforcement the kyoto protocol aims to limit aggregate carbon emissions by participating countries to 1990 emissions levels in aggregate it also allows for the creation of a permit market in which countries will be able to buy and sell the right to emit carbon dioxide this paper investigates how market power held by the countries of the former soviet union and enforcement of the carbon emission limits might affect the abatement and the cost of compliance with the kyoto protocol to do so it uses a modified version of the van egteren weber 1996 model to investigate a permit market in the presence of both market power and enforcement difficulties it then simulates the model finding that if meeting abatement targets is the goal regulating the supply side of the market and convex fine schedules are the most effective tools

market power with interdependent demand sale of emission permits and natural gas from russia with implementation of the kyoto protocol russia will most likely be able to exert market power in the emission permit market but as russia is also a big exporter of fossil fuels the incentives to boost the permit price may be weak however a significant share of russia s fossil fuel exports is natural gas if a high permit price boosts the demand for natural gas through substitution from more polluting fuels and thus increase gas profits this may increase the incentives to exert monopoly power in the permit market moreover a large fossil fuel exporter may use its market position to influence the effective demand for permits hence the relationship between permit income and fossil fuels exports runs in both directions in this article we explore the interdependence between the revenues from permit and fossil fuel exports both theoretically and numerically a computable general equilibrium model suggests the fact that russia as a big gas exporter has small effect on the incentives to exert monopoly power in the permit market moreover russia s monopoly power in the permit market has a small but non negligible impact on the optimal level of russian gas exports

do transaction costs influence firm trading behaviour in the european emissions trading system this study is one of the first to empirically investigate firm trading behaviour and the importance of permit trading transaction costs such as information costs and search costs in the first phase of the european union s emissions trading system eu ets the signs and significance of our constructed transaction costs proxy variables indicate for a presence of these costs in the initial years of the eu ets in particular this paper shows that ets firms with the smaller number of installations and with less trading experience were less likely to participate in the european emissions trading market and traded the lower quantities of permits furthermore these firms chose to trade permits indirectly via third parties this study also supports the concerns that transaction costs could be excessive for smaller participants and firms operating in the new eu member states

market power in tradable emission markets a laboratory testbed for emission trading in port phillip bay victoria abstract in theory competitive emission permit markets minimize total abatement costs permit markets are often imperfectly competitive however and may be thin and dominated by large firms the dominant firm s could exercise market power and increase other firms costs of pollution control while reducing their own emission control costs this paper reports a testbed laboratory experiment to examine whether a dominant firm can exercise market power in a permit market organized using the double auction trading institution our parameters approximate the abatement costs of sources in a proposed tradable emissions market for the reduction of nitrogen in the port phillip watershed in victoria australia we vary across treatments the initial allocation of permits to sources so that in one treatment the seller of permits is a monopolist and in another treatment the market is duopolistic we also vary the information that subjects have about the number and abatement costs of their competitors we find that prices and seller profits are higher and efficiency is lower on average in the monopoly sessions compared with the duopoly sessions but the differences are not substantial and are not statistically significant due to pronounced variation across sessions moreover prices profits and transaction volumes are usually much closer to the competitive equilibrium ce than the monopoly equilibrium

transitional restricted linkage between emissions trading schemes linkages between emissions trading systems are deemed an important element of the future climate policy landscape they are however difficult to agree and remain few and far between temporary restrictions on permit trading have potential to facilitate and gradually approach unrestricted full linkage we compare the relative merits of several link restrictions in this respect namely quantitative transfer limits border taxes on transfers exchange and discount rates and unilateral linkage to this end we develop a simple model to have a unifying framework which in conjunction with lessons we draw from real world experiences serves as a basis for a broader policy oriented discussion while quantitative restrictions seem to be the natural route to full linkage they can lead to uncertain distributional effects and weaken price signals these aspects are mitigated under a border permit tax but this policy seems harder to implement exchange rates have potential to adjust for programmes stringencies and raise ambition over time but can be challenging to select as experience corroborates unilateral linkage can be a convenient approach

implementing the efficient allocation of pollution we provide simple mechanisms to implement the efficient allocation of pollution first assuming complete information across firms and then allowing for incomplete information both mechanisms operate by inducing firms to monitor one another using firms reports to determine pollution allotments and transfers the complete information mechanism determines a firm s transfer according to a linear pollution price set by other firms both mechanisms can be modified to be budget balanced in and out of equilibrium the complete information mechanism implements the efficient allocation even when firms are allowed to use mixed strategies under a single crossing condition the same holds for the incomplete information mechanism this abstract was borrowed from another version of this item

an economic theory of vertical restraints vertical restraints imposed by manufacturers on the prices locations and sales of retail firms represent a puzzling departure from the simple price mediated exchange of conventional markets in this article we analyze the theoretical basis for these restraints in a setting where retailers inform consumers and are imperfectly competitive and where a manufacturer has some monopoly power we identify three potential externalities affecting retailers decisions these externalities lead to the failure of simple uniform price contracts to coordinate the incentives of retailers with the objective of maximizing combined manufacturer and retailer profits we identify the packages of vertical restraints that are minimally sufficient under various conditions to neutralize the externalities and to achieve the joint profit maximum

banking and borrowing in the eu ets a review of economic modelling current provisions and prospects for future design this article deals with the issue of banking and borrowing in the context of the european union emissions trading scheme eu ets by attempting to provide a policy oriented unifying theoretical framework after describing the main features of the eu ets the core part of the article consists of variations of an inter temporal continuous time optimization model additional elements include flexibility measures currently discussed and proposed in other emissions trading systems usa australia which include the use of safety valves minimum price auctioning or offsets from domestic or international projects

ownership agency and wages an examination of franchising in the fast food industry this paper estimates the difference in compensation between company owned and franchisee owned fast food restaurants the contrast is of interest because contractual arrangements give managers of company owned outlets less of an incentive to monitor and supervise employees estimates based on two data sets suggest that employee compensation is slightly greater at company owned outlets than at franchisee owned outlets the earnings gap is 9 percent for assistant and shift managers and 2 percent for full time crew workers furthermore the tenure earnings profile is steeper at company owned restaurants these findings suggest that monitoring difficulties influence the timing and generosity of compensation

market power in laboratory emission permit markets many proposals suggesting the use of markets tocontrol pollution assume markets will becompetitive when markets do not exhibitcompetitive characteristics however shouldthey still be expected to result in efficiencyimprovement relative to traditional approaches this paper employs experimental economicmethods to examine the effect of marketstructure on the use of marketable emissionspermits results indicate that in a market withone dominant firm and a number of fringe firms strategic manipulation occurs repeatedly in thelaboratory as predicted by market power models undermining the allocative and dynamicefficiency benefits such markets offer whenfirms compete in a downstream product marketdominated by the same single firm marketefficiency can actually be reduced with theimplementation of permit markets final marketefficiencies reflect initial endowments and areinfluenced by competitive conditions elsewherein the economy indicating that policy makersshould carefully consider whether markets areappropriate in such circumstances

a tradable permit system in an intertemporal economy it is known that in an intertemporal competitive economy a tradable permit system may not achieve efficiency without setting appropriate permit interest rates i e rewards for holding permits to find the rates however we need to know in advance the path of efficient permit prices which is difficult to obtain this study intends to solve this problem in two ways first we analyze a special case in which the permit interest rates are given by a simple rule for example if the marginal abatement cost of pollution emission is constant then the appropriate rate is to equal the monetary interest rate as is the case for global warming if the damage is caused in the future far beyond the planning period of the environmental program the appropriate rate coincides with the marginal self recovery of environmental stock under certain conditions as a second approach we propose a tradable permit system with a permit bank as a mechanism by which the permit interest rates are generated endogenously without governmental intervention other than the issuance of permits however we also show that this approach raises the problem of indeterminacy of the equilibrium

international emission permit markets with refunding we propose a blueprint for an international emission permit market such as the eu trading scheme each country decides on the amount of permits it wants to offer a fraction of these permits is grandfathered the remainder is auctioned revenues from the auction are collected in a global fund and reimbursed to member countries in fixed proportions we show that international permit markets with refunding lead to outcomes in which all countries tighten the issuance of permits and are better off compared to standard international permit markets if the share of grandfathered permits is sufficiently small we obtain approximately socially optimal emission reductions

a study of allocative efficiency of pm2 5 emission rights based on a zero sum gains data envelopment model abstract it is an urgent task for china to control haze emission in environmental treatment emission right trading is a feasible way to achieve the reduction of pollutant emission on the premise that the total pollutant emission amount is under control and the allocation of initial emission rights based on the target total amount is the key to emission right trading in this paper via the input oriented zsg dea model the inter provincial allocative efficiency of pm2 5 emission rights is investigated under the condition that the target total amount is fixed the results showed that 1 after initial emission rights were allocated in accordance with the zsg dea model pm2 5 emission amounts of all provinces would be in a new common dea frontier so as to realize the overall pareto optimality with a set total amount 2 two factors namely land areas and atmospheric environmental capacities of all provinces were considered in the actual allocation to avoid the homogenization of all evaluated units found in the previous evaluation literature on allocative efficiency thereby making the evaluation results more in line with the actual situations in all provinces such an investigation approach can provide guidance on the allocation of initial emission rights in emission right trading and the research results can offer empirical support for haze reducing work load conducted by central and local governments of china

tradable deficit permits efficient implementation of the stability pact in the european monetary union tradable deficit permits efficient implementation of the stability pact borrowing from the experience of environmental markets this paper proposes a system of tradable deficit permits as an efficient mechanism for implementing fiscal constraints in the european monetary union having chosen an aggregate target for the union and an initial distribution of permits emu countries could be allowed to trade rights to deficit creation the scheme exploits countries incentives to minimize their costs is transparent and flexible in accommodating idiosyncratic shocks and allows for adjustments in case of europe wide recessions in addition it need not treat all countries identically and can be designed to penalize countries with higher debt to gdp ratios finally the scheme rewards countries for reducing their deficit below the initial allowance lending credibility to the stability pact s goal of a balanced budget in the medium run alessandra casella

assessing the performance of the uk emissions trading scheme the uk s climate change programme introduced an emissions trading scheme ets for greenhouse gases firms in over 40 industrial sectors which have negotiated climate change agreements setting quantitative energy efficiency targets can use the ets to trade over and under compliance with these targets in parallel a limited number of firms have become major participants in the ets as a result of an auction of subsidies for additional abatement commitments the paper describes the uk arrangements and assesses the economic efficiency and environmental effectiveness of the ets drawing on evidence of participants behaviour both in the incentive auction and in subsequent trading

free trade and global warming a trade theory view of the kyoto protocol this paper demonstrates how three important results in environmental economics true under mild conditions in closed economies are false or need serious amendment in a world with international trade in goods since the three results we highlight have framed much of the ongoing discussion and research on the kyoto protocol our viewpoint from trade theory suggests a re examination may be in order specifically we demonstrate that in an open trading world but not in a closed economy setting 1 unilateral emission reductions by the rich north can create self interested emission reductions by the unconstrained poor south 2 simple rules for allocating emission reductions across countries such as uniform reductions may well be efficient even if international trade in emission permits is not allowed and 3 when international emission permit trade does occur it may make both participants in the trade worse off and increase global emissions

distributing pollution rights in cap and trade programs are outcomes independent of allocation standard economic theory predicts that if property rights to pollute are clearly established equilibrium outcomes in an efficient emissions permit market will be independent of how the emissions permits are initially distributed this so called independence property has important implications for policy design and implementation past studies document a strong positive correlation between the initial permit allocation and firm level emissions raising concerns that the independence property is failing to hold in real world settings we exploit the random assignment of firms to different permit allocation cycles in southern california s reclaim program in order to test the independence of permit allocation and emissions our results lend empirical support to the independence hypothesis

simulating the effect of regulatory systems in a fishery an application to the french driftnet albacore fleet with a thin economic component most bio economic models of fisheries failto assess the effects of the regulation systems on firms in order to analysethe short term consequences of different management schemes a simulationmodel is applied to the french driftnet albacore fleet licence allocation withdriftnet regulation individual quotas and individual transferable quotaswithout any input control vessel technology is estimated by using the datacollected and groups of vessels are distinguished according to criteria ofperformance we present the adjustment within firms and between groupsunder different scenarios limited entry with and without driftnetregulation individual quotas and individual transferable quotas allocation and we compare their results in terms of quasi rent value and otherindicators such as hake harvests or dolphin by catches