marketable pollution permits in oligopolistic markets with transaction costs in this paper we present a variational inequality framework for the modeling qualitative analysis and computation of equilibrium patterns in multiproduct multipollutant oligopolistic markets with marketable pollution permits in the presence of transaction costs the model deals explicitly with spatial differentiation and also guarantees that the imposed environmental quality standards are met through the initial allocation of licenses an algorithm is proposed with convergence results to compute the profit maximized quantities of the oligopolistic firms products and the quantities of emissions along with the equilibrium allocation of licenses and their prices numerical examples are included to illustrate this approach

market power permit allocation and efficiency in emission permit markets market power in permit markets has been examined in some detail following the seminal work of hahn q j econ 99 4 753 765 1984 but the effect of free allocation on price manipulation with market power in both product and permit market has not been fully addressed i show that in this case the threshold of free allocation above which a dominant firm will set the permit price above its marginal abatement costs is below its optimal emissions in a competitive market and that overall efficiency cannot be achieved by means of permit allocation alone in addition to being of general economic interest this issue is relevant in the context of the eu ets i find that the largest german uk and nordpool power generators received free allowances in excess of the derived threshold conditional on having price setting power in both the electricity and permit markets these firms would have found it profitable to manipulate the permit price upwards despite being net permit buyers

a comparison of contingent preference models i compare the informational efficiencies of contingent rating contingent ranking and two contingent paired comparison methods as alternatives to the referendum contingent valuation method the contingent rating method is hypothesized to be most efficient because ratings convey information on preference intensities and can uniquely represent respondent indifference or ambivalence survey data on hunters ratings of alternative hypothetical hunting trips are used to estimate four alternative indirect utility models from which marginal willingness to pay measures for individual trip attributes are derived model comparison wtp estimates and their confidence intervals confirm the relative efficiency of the contingent rating approach

estimating distributions of willingness to pay for heterogeneous populations random parameters logit models have emerged as a standard approach in estimating public preferences for a range of goods and services however to simplify calculation of welfare measures the marginal utility of income is often assumed to be constant across the population we show that by shifting distributional assumptions from marginal utilities to the welfare measures themselves a random parameters version of a censored logistic regression model cameron 1988 yields distributions of welfare measures more directly and without imposing any unnecessary assumption on the marginal utility of income we develop the theoretical framework for the model and apply it to contingent choice survey data for siting a noxious facility in rhode island in this application our proposed model and random parameters logit yield similar mean willingness to pay but welfare measures are more readily interpretable in the proposed model

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

firm behaviour under pollution ratio standards with non compliance this paper compares a firm s short run optimal production and abatement rules under emission level standards and standards expressed in terms of emissions per unit of output ratio standards the models allow for non compliance with standards with expected penalties dependant on either level or relative violations of the standard in question it is shown that ratio arguments make a difference to the optimal decision rules derived for a profit maximising firm for example for a given level of emissions the firm both produces more and abates more under a ratio standard so that ratio and level standards cannot be used interchangeably to achieve the same combination of emissions and output the implications for the efficiency of pollution control are briefly discussed

regulation and evolution of compliance in common pool resources the evolution of compliance with regulation and the evolution of a cpr stock are modeled jointly in a setup where replicator dynamics describing compliance with harvesting rules are combined with resource stock dynamics this evolutionary approach suggests that in long run equilibrium coexistence of both cooperative and non cooperative rules is possible under regulation stock effects on profits and a certain structure of auditing probabilities could imply the emergence of a limit cycle in areas of low stock levels as an equilibrium outcome it might be easier for the regulator to obtain full compliance under precommitment to fixed auditing probabilities

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

the regulatory choice of noncompliance in emissions trading programs this paper addresses the following question to achieve a fixed aggregate emissions target cost effectively should emissions trading programs be designed and implemented to achieve full compliance or does allowing a certain amount of noncompliance reduce the costs of reaching the emissions target the total costs of achieving the target consist of aggregate abatement costs monitoring costs and the expected costs of collecting penalties from noncompliant firms under common assumptions i show that allowing noncompliance is cost effective only if violations are enforced with an increasing marginal penalty however one can design a policy that induces full compliance with a constant marginal penalty that meets the aggregate emissions target with lower expected costs this last result does not depend on setting an arbitrarily high constant marginal penalty in fact the marginal penalty need not be higher than the equilibrium marginal penalty under the policy with the increasing marginal penalty and can actually be lower finally tying the marginal penalty directly to the permit price allows the policy objective to be achieved without any knowledge of firms abatement costs

collusion and price rigidity we consider an in nitely repeated bertrand game in which prices are publicly observed and each rm receives a privately observed i i d cost shock in each period we focus on symmetric perfect public equilibria sppe wherein any punishments are borne equally by all rms we identify a tradeoff that is associated with collusive pricing schemes in which the price to be charged by each rm is strictly increasing in its cost level such fully sorting schemes offer efficiency bene ts as they ensure that the lowest cost rm makes the current sale but they also imply an informational cost distorted pricing and or equilibrium path price wars since a higher cost rm must be deterred from mimicking a lower cost rm by charging a lower price a rigid pricing scheme where a rm s collusive price is independent of its current cost position sacri ces efficiency bene ts but also diminishes the informational cost for a wide range of settings the optimal symmetric collusive scheme requires i the absence of equilibrium path price wars and ii a rigid price if rms are sufficiently impatient however the rigid pricing scheme cannot be enforced and the collusive price of lower cost rms may be distorted downward in order to diminish the incentive to cheat when the model is modi ed to include i i d public demand shocks the downward pricing distortion that accompanies a rm s lower cost realization may occur only when current demand is high

applied welfare economics with discrete choice models economists have been paying increasing attention to the study of situations in which consumers face a discrete rather than a continuous set of choices such models are potentially very important in evaluating the impact of government programs upon consumer welfare but very little has been said in general regarding the tools of applied welfare economics indiscrete choice situations this paper shows how the conventional methods of applied welfare economics can be modified to handle such cases it focuses on the computation of the excess burden of taxation and the evaluation of quality change the results are applied to stochastic utility models including the popular cases of probit and logit analysis throughout the emphasis is on providing rigorous guidelines for carrying out applied work this abstract was borrowed from another version of this item

environmental and resource economics a canadian retrospective the paper reviews research contributions to environmental and resource economics by scholars in canada we focus mainly on work from the past 25 years but also highlight earlier pathbreaking work we begin by looking at broad trends in research both internationally and within canada we then review canadian contributions to various topics in the field canadians have played a leading role in the development of the field especially in resource economics international environmental economics and the valuation of environmental amenities

ratings quality over the business cycle credit rating agencies cras have long held that reputational concerns discipline their behavior the value of reputation however depends on economic fundamentals that vary over the business cycle in a model of ratings incorporating endogenous reputation and a market environment that varies we find that ratings quality is countercyclical specifically a cra is more likely to issue less accurate ratings when fee income is high competition in the labor market for analysts is tough and securities default probabilities are low persistence in economic conditions can diminish our results while mean reversion exacerbates them the presence of naive investors reduces overall quality but quality remains countercyclical finally we demonstrate that competition among cras yields similar results

dynamic pricing in retail gasoline markets supergame models of tacit collusion show that supportable price cost margins increase with expected future collusive profits ceteris paribus as a result collusive margins will be larger when demand is expected to increase or marginal costs are expected to decline using panel data on sales volume and gasoline prices in 43 cities over 72 months we find behavior consistent with tacit collusion in retail gasoline markets controlling for current demand and cost current margins increase with expected next month demand and decrease with expected next month cost the results are not consistent with intertemporal l inkages due to inventory behavior or customer loyalty

measuring heterogeneous preferences for preserving farmland and open space abstract public preferences for environmental policies often vary among individual citizens according to their socio economic characteristics and attitudes toward environmental programs most researchers account for socio economic characteristics when conducting public preference surveys but do not account for differences in preferences that transcend socio economic categories identifying the public s attitudes regarding environmental programs and the role they play in shaping individuals preferences for policy alternatives can assist policy makers in developing programs that are consistent with public expectations this paper uses factor analysis and a discrete choice model to describe differences in public preferences that result from different attitudes regarding the goals of programs designed to preserve farmland and open space results describe policy implications that are not apparent when using models that address socio economic characteristics alone

willingness to pay for agricultural land preservation and policy process attributes does the method matter this article examines relationships between willingness to pay for land preservation and policy process attributes the approach departs from traditional welfare assessments in that it does not constrain attributes of the policy process to be utility neutral results indicate policy process attributes may influence utility in some circumstances even after controlling for the influence of land use outcomes often correlated with specific policy techniques results further imply that in some cases even comprehensive specification of land use outcomes by stated preference instruments may be insufficient to prevent systematic shifts in willingness to pay related to unspecified yet assumed policy process attributes

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

public funding of environmental amenities contingent choices using new taxes or existing revenues for coastal land conservation alternative funding approaches affect stated preferences an individual s willingness to reallocate existing tax dollars exceeds willingness to pay new taxes to conserve land however stated preferences also imply a non zero opportunity cost to existing tax dollars different income groups reveal statistically equivalent marginal utilities both for income and for reallocating tax dollars yet individuals with lower income show a relatively larger increase in their willingness to support land conservation when the choice shifts from new taxes to reallocation of existing tax dollars the paper encourages consideration of equity implications that may be obscured when analysts focus on willingness to pay

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

comparing consumer preferences for color and nutritional quality in maize application of a semi double bound logistic model on urban consumers in kenya consumer preferences for white maize in east and southern africa concerns developers of maize biofortified with provitamin a carotenoids since carotenoids impart a yellow or orange coloration urban consumers willingness to pay wtp for yellow maize was estimated using a semi double bounded logistic model based on a survey of 600 maize consumers in nairobi kenya at posho mills kiosks and supermarkets consumers showed a strong preference for white maize only a minority would buy yellow maize at the same price as white maize and fewer consumers in the posho mills 24 and kiosks 19 than in the supermarkets 34 would do so on average consumers need a price discount of 37 to accept yellow maize this discount was less at the posho mills 35 and kiosks 37 than in the supermarkets 48 most respondents 76 were aware of the existence of fortified meal and the generally showed an interest the average premium for fortified maize was much less than the discount for yellow 5 9 for those aware and 7 4 for those unaware consumer preferences were influenced by socioeconomic factors such as gender education income and ethnic background women have a stronger preference for both white maize and fortified maize than men and consumers with more education have a stronger preference for white income decreases the wtp for yellow maize as well as the price elasticity but increases the wtp for fortified maize consumers originating from western kenya have a lower preference for white while those from central kenya had a stronger preference for fortified maize

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

enforcement and price controls in emissions trading this paper examines how enforcement affects the structure and performance of emissions trading programs with price controls under uncertainty about firms abatement costs the analysis highlights how an enforcement strategy can cause abatement cost risk to be transmitted to enforcement costs via the price of permits when this occurs accommodating the effect of abatement cost risk with an optimal policy results in higher expected emissions and lower expected permit price than their second best optimal values however it is possible to design an enforcement strategy that shields enforcement costs from abatement cost risk by tying sanctions directly to permit prices this enforcement strategy stabilizes enforcement effort the optimal permit supply and price controls are independent of enforcement costs and the policy produces the second best optimal outcome

the many faces of adjustment the 1980s was a decade of adjustment for much of the third world at an early stage unicef drew attention to the serious human costs of the recession and subsequently to the impact of stabilisation and adjustment measures on vulnerable groups and the need for special policies to counter these costs jolly and cornia 1984 cornia jolly and stewart 1987 in the latter half of the decade there were apparently very major changes in the international financial institutions in these matters in their recognition of the social costs of adjustment and of the need for changes in policies

when and for whom would e waste be a treasure trove insights from a network equilibrium model of e waste flows electrical and electronic equipment waste e waste is growing fast due to its potential economic value as well as its possible negative impacts on the environment tracing e waste flow is a major concern for stakeholders of e waste management especially whether or not adequate amounts of electrical and electronic equipment waste weee flow into the designed recycling systems is a fundamental issue for sustainable operations in this paper we analyze how technical market and legislative factors influence the total amount of e waste that is collected recycled exported and legally and illegally disposed off we formulate the e waste network flow model as a variational inequality problem the results of the numerical examples highlight the importance of considering the interaction between the supply and the demand side for precious materials in policy decisions low collection rates of e waste lead to low profits for stakeholders and make it difficult to establish sustainable recycling operations increasing weee collection rates increases recyclers profits however it only increases smelters profits up to a certain limit after which smelters cannot benefit further due to limited demand for precious materials furthermore the results emphasize the importance of establishing international control regimes for weee flows and reveal possible negative consequences of the recent trend of dematerialization more precisely product dematerialization tends to decrease recyles and smelters profits as well as to increase the outflow of e waste from the designated recycling system authors abstract

evaluating impacts from noxious facilities including public preferences in current siting mechanisms abstract this paper describes an approach to facility siting that ranks potential sites in terms of their social impacts a contingent choice survey based on paired comparisons is used to construct a utility index to rank sites consistent with predicting results of a hypothetical referendum based on the attributes of the sites the method is likely to be acceptable to public decision makers since it is analogous to site scoring methods that have been commonly used indeed our approach is currently being employed as part of a larger landfill site selection process in the state of rhode island

predicting the effects of market reform in zimbabwe a stated preference approach a stated preference approach is used to predict likely responses to market reform in zimbabwe a random utility model is estimated using data on consumers stated preferences for alternative types of maize meal the model is used to predict demand patterns resulting from market reforms predicted demand is then compared with actual demand following market reforms an analysis of the welfare effects of alternative policy scenarios shows that coupling the removal of consumer maize subsidies with improved access to a broader range of maize meal products ameliorated many of the adverse effects of subsidy removal especially for lower income groups

estimating consumer willingness to pay for food quality with experimental auctions the case of yellow versus fortified maize meal in kenya biofortification of maize with provitamin a carotenoids is a new approach to the alleviation of vitamin a deficiencies in africa unfortunately these varieties are yellow or orange while consumers generally prefer white consumer willingness to pay for yellow and fortified maize was compared in experimental auctions in three regions in kenya the premium that consumers are willing pay for fortified maize 24 was higher than the discount they require to buy yellow maize 11 and in one zone consumers prefer yellow yellow color is therefore not an impossible obstacle for biofortified maize although it would clearly be easier to introduce this maize first in regions where yellow maize is currently grown

abatement and permits when pollution is uncertain and violations are fined this paper considers a firm s choice of abatement and of the number of permits if actual pollution is stochastic such that full compliance cannot be ensured this straightforward extension induces non trivial and unexpected comparative static properties such as permits and abatement can be either substitutes or complements higher fines can lower the number of acquired permits or abatement and higher permit prices can reduce abatement yet integrating these reactions into a competitive permit market eliminates puzzling features this is an additional justification of tradable permits over standards where regulators must cope with potentially counterproductive firm reactions

marketable permits market power and cheating abstract in this paper we present a model of a noncompliant firm operating in a marketable pollution permit market in the main result of the paper we show how compliance is related to the initial distribution of permits a firm with market power will cheat less the larger its endowment of permits is from a fixed stock of permits the competitive fringe however will cheat more as its endowment of permits is reduced generating an ambiguous global impact on cheating

tragic choices and collective decision making an empirical study of voter preferences for alternative collective decision making mechanisms central to this paper has been the idea that there might be a demand on the part of the citizens for having specific decision mechanisms in specific types of situations this demand cannot be deduced on purely theoretical grounds but rather should be registered case by case theory might help in categorising classes of situations where decisions can be tackled with the same approach in any case the choice of a decision mechanism should not be left completely at the discretion of the policy maker if the citizens s welfare is to be promoted in a suitable way

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

disclosure policy and industry fluctuations this paper examines voluntary disclosures in a repeated oligopoly and their association with price setting behavior and industry profits along industrial fluctuations the analysis focuses on the collectively optimal equilibrium among oligopoly firms we show that in industries that are highly concentrated or feature low cost of capital nondisclosure is prevalent and results in stable product prices and high profit margins otherwise firms may selectively disclose to soften competition in the product market under partial disclosure firms withhold information during sharp industry expansions or declines consequently the disclosure policy dampens the dissemination of shocks to the industry this paper was accepted by mary barth accounting

intergovernmental versus intersource emissions trading when firms are noncompliant abstract this paper analyzes the relative cost effectiveness of intergovernmental versus intersource cross border emissions trading when polluting firms are noncompliant a special focus is placed on the presence of enforcement costs and the associated credibility problem of governmental monitoring it is shown that without inspection commitment the intergovernmental system is more cost effective because the endorsed flexibility in domestic emission taxation serves as a commitment device for building credibility of monitoring

modeling the choice to switch from fuelwood to electricity implications for giant panda habitat conservation despite its status as a nature reserve wolong nature reserve china has experienced continued loss of giant panda habitat due to human activities such as fuelwood collection electricity though available throughout wolong has not replaced fuelwood as an energy source we used stated preference data obtained from in person interviews to estimate a random utility model of the choice of adopting electricity for cooking and heating willingness to switch to electricity was explained by demographic and electricity factors price voltage and outage frequency in addition to price nonprice factors such as voltage and outage frequency significantly affect the demand thus lowering electricity prices and increasing electricity quality would encourage local residents to switch from fuelwood to electricity and should be considered in the mix of policies to promote conservation of panda habitat 2002 elsevier science b v all rights reserved

markets and regulatory hold up problems abstract many regulatory programs such as environmental regulation are effective only if firms make irreversible investments that reduce the cost of compliance a firm potentially subject to regulation may therefore behave strategically by not investing thereby forcing the regulator to void the proposed regulation we show that such incentives which resemble a hold up problem may not be overcome when government s only tool is the imposition of an emissions tax the hold up problem can be overcome by the issuance of tradeable permits a time consistent equilibrium exists with all firms investing and the government imposing regulations even if no permits are traded and their market price is low indeed an observation of no trade may indicate that pollution abatement is great

the rigidity of prices this paper uses evidence on individual transaction prices to analyze price behavior the evidence shows that for many transactions pricesremain rigid for periods exceeding one year the rigidity of price ispositively correlated with industry concentration for several productsthe correlation of price changes across buyers is low the paper alsoinvestigates the relationship between price rigidity price change andthe length of time a buyer and seller have been doing business together the author interprets the evidence as emphasizing the importance of nonprice rationing and the inadequacy of models in whichprice movements alone clear markets copyright 1986 by american economic association

new economic theories this paper analyses some of the most important spillovers of recent developments of economic theory into environmental economics attention is given to the anlaysis of sustainable economic development paths where endogenous growth models are used the implications of environmental dumping and more generally of policies concerning global environmental issues where new trade theories are very useful and the effectiveness of environmental policy instruments when markets are imperfectly competitive where industrial organisation theory is employed the paper does not only note recent developments in environmental economics but also relates these to the previous environmental economics literature thus it can be assessed whether new results actually improve our knowledge of crucial economic and environmental issues

accounting policies in agencies with moral hazard and renegotiation we emphasize the role of accounting policies and their audit in an earnings management setting we use a two period agency in which three frictions interact the agent privately observes action or effort supply and output and the initial contract is subject to renegotiation this creates a setting in which both players behavior is of concern and importantly information rationing is efficient moreover this information rationing is directly interpretable as being produced by an accounting policy whose application is ensured by an auditor

non compliance and the quota price in an itq fishery this paper examines the effects of non compliance on quota demands and the equilibrium quota price in an itq fishery i show that whereas lower quota prices are implied unambiguously by expected penalties which are a function of the absolute violation size the expectation of penalties based upon relative violations of quota demands can under certain conditions produce higher quota prices than in a compliant quota market if there are both compliant and non compliant firms in the fishery the result would then be a shift in quota demand from compliant to non compliant firms rather than the reverse the findings are generally applicable to quota markets in other industries including pollution permit markets

corruption and air pollution in europe this paper examines how the effectiveness of regulatory framework influences levels of sulphur emissions in a scenario where to reduce its emission tax payments a polluting firm may under report emissions level at the risk of being audited and fined first a model to explain how changes in regulatory framework e g audit effectiveness and transboundary spillovers affect both actual and reported emissions is developed then the theoretical predictions using data for 39 european countries from 1999 to 2003 are tested and inferences about true emission levels are made the empirical analysis supports the theoretical predictions with significant implications for the interpretation of pollution data reported to international monitoring agencies countries with effective regulation are likely to have relatively high reported emissions of sulphur but this should not automatically be interpreted as weak environmental performance because their actual pollution levels are likely to be lower than in nations with less effective regulation

collusion over the business cycle we present a theory of collusive pricing for markets in which demand alternates stochastically between fast growth boom and slow growth recession phases we show that 1 the most collusive prices are weakly procyclical countercyclical when demand growth rates are positively negatively correlated through time and 2 the amplitude of the collusive pricing cycle is larger when the expected duration of boom phases decreases and when the expected duration of recession phases increases we also offer a generalization of rotemberg and saloner s 1986 model interpreting their findings in terms of transitory demand shocks that occur within broader business cycle phases

mixing methods within stated preference environmental valuation choice experiments and post questionnaire qualitative analysis abstract assessing public preferences for natural resources is a difficult task the complexity of the research problem has encouraged practitioners to adopt qualitative approaches as exploratory and diagnostic tools within the conventionally more quantitative stated preference research building on best practice from previous studies this paper reports the findings of post questionnaire focus group analysis investigating the adequacy of a choice experiment ce valuation exercise and its public acceptability the specifics of the scenario and design choices are shown to markedly reduce problems of charity like and bid realism fair share responses observed in previous studies and significant sensitivity to good characteristics is observed however a less tractable problem of valuing unfamiliar goods remains with insights given regarding public acceptability and the usefulness of the findings to environmental decision making

enforcing transferable permit systems in the presence of market power we derive an enforcement strategy for a transferable permit system in the presence of market power that achieves complete compliance in a cost effective manner we show that the presence of a firm with market influence makes designing an enforcement strategy more difficult than enforcing a perfectly competitive system we also re consider hahn s 1984 suggestion that a firm with market influence should be allocated permits so that it chooses to not participate in the permit market when enforcement and its costs are taken into account hahn s suggestion does not hold except in a very special case the presence of market power will limit the extent to which transferable emissions permit systems can fulfill their theoretical promises hahn 1984 was the first to show that permit trading in the presence of market power cannot be expected to result in a distribution of emissions that minimizes aggregate abatement costs furthermore the distribution of emissions will never be completely independent of the initial allocation of permits modeling a transferable permit system in which one firm has market power while the rest are perfect competitors a dominant firm competitive fringe model hahn demonstrated that aggregate abatement costs are minimized only when the dominant firm is allocated exactly the number of permits it will choose to hold in equilibrium simply aggregate abatement costs are minimized only when a firm that can manipulate the permit price does not because it chooses to not trade permits like most of the theoretical literature on transferable permit systems hahn ignored the fact that compliance in a permit system must be enforced recognizing this important omission van egteren and weber 1996 extended hahn s work to

using history dependence to design a dynamic tradeable quota system under market imperfections a transferable quota system is analysed in a two period model with market power so far the management mechanisms presented in the literature to remedy market power have either not succeeded in securing efficiency in the distribution of quota within and across time periods or have resulted in only one of the two inefficiencies being eliminated in this paper a new mechanism is introduced where allocation of quota is made dependent upon historic quota acquisitions this opens for a trade off between distributional and time efficiency or under specific circumstances securing overall efficiency