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

tradeable permits missing markets and technology this paper examines the effects of missing markets heterogeneous pollutants and the pollution technology of firms on the efficacy of transferable pollution permits under the assumption of perfect competition in all markets we show that if firms can substitute among pollutants then setting the optimal number of permits for only one pollutant will not in general lead to an efficient outcome the degree of the inefficiency will depend on the information set available to the regulator and the substitutability among pollutants by firms when establishing transferable pollution rights regulators should therefore consider the technology of firms if firms discharge pollutants in the same fixed proportions then the regulator need only set a market for one of the pollutants to ensure an efficient outcome where firms can substitute among pollutants however establishing a market for only one pollutant provides an incentive for firms to substitute to unregulated ones this is an important policy issue as substitutability among pollutants within and across production processes may dampen the dynamic advantages of a tradeable permit policy

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

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

voluntary disclosure of greenhouse gas emissions contrasting the carbon disclosure project and corporate reports as global warming continues to attract growing levels of attention various stakeholders states general public investors and lobbyists have put climate change on corporate agendas and expect firms to disclose relevant greenhouse gas ghg information in this paper we investigate the consistency of the ghg information voluntarily disclosed by french listed firms through two different communication channels corporate reports cr and the carbon disclosure project cdp more precisely we contrast the amounts of ghg emissions reported and the methodological explanations provided named traceability in each channel consistent with a stakeholder theory perspective we find that ghg amounts are significantly lower in the cr than in the cdp we also find that firms increase the cr figures traceability when there is a discrepancy between disclosures in the two channels we suggest that the aim of this greater traceability is to enhance information credibility across the different channels used

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

competition and cooperation in the market for exclusionary rights salop and david scheffman 1983 show that firms profitably can gain market power by conduct that raises their competitors costs raising rivals costs is a more credible route to market power than is predatory pricing because it is not necessary to cause the rivals to exit no deep pocket is required and the additional profits are gained immediately that paper argues that vertical restraints and contracts with input suppliers can be fertile ground for raising competitors costs by contracting with one or more suppliers to exclude rivals either by dealing with them on discriminatory terms or refusing to deal with them altogether a firm sometimes can increase its rivals costs as a result it can sometimes gain the power to raise price in the market in which it sells output this type of contract often can be characterized as the purchase of an exclusionary right from the input suppliers that is in addition to the purchase of inputs the predator also purchases the right to exclude some of its rivals from access to the suppliers inputs exclusionary rights contracts can exist in a variety of forms at one extreme are agreements that involve only exclusionary rights no inputs are exchanged at all for example it was reported in alcoa that at one time alcoa purchased exclusionary covenants from power companies from which it did not purchase electricity the contracts involved only the utilities promises not to sell electricity to other aluminum companies such naked exclusionary rights contracts are unusual of course most exclusionary rights are bundled with the sale of inputs for example stroh beer has alleged that the two major brewers purchase not only advertising time on network sports programs but also the right to exclude remaining brewers from advertising on those same programs even though the networks have other advertising time available it might be argued that such exclusionary conduct would always fail for two reasons the excluded rivals would have available effective counterstrategies to prevent their own exclusion and input suppliers would have no incentives to reduce their sales by excluding some customers these criticisms imply that raising rivals costs by contracting with suppliers would not be credible it surely is not true that exclusionary strategies to restrict rivals input purchases will always succeed in raising their costs for example where rivals easily can substitute to other equally cost effective inputs or where entry into the production of inputs is so easy that the excluded rivals can efficiently produce the input themselves then cost raising strategies will fail moreover where competition in the output market would be sufficient to maintain low prices despite the exit or increased costs of the excluded competitors then no profit maximizing firm would spend any resources trying to exclude those rivals these conditions are discussed in detail in our earlier paper 1985 tdiscussants ronald h coase university of chicago gregory k down yale university david sappington bell communications research and university of pennsylvania

a positive theory of environmental quality regulation this paper demonstrates that environmental quality regulation may enhance producer wealth while simultaneously reducing an externality problem by restricting access to common property regulation not only corrects a resource misallocation but it creates a scarcity rent as well in the recent history of environmental quality the common access problem has been addressed by federal and state agencies through a standards based approach rather than through the enforcement of tradable property rights as a consequence rents from the right to use these assets have accrued to producers the data are convincing that there is a strong interplay between producers consumers and the victims of pollution each party has some influence on the outcome and one sided analysis neglects many important aspects of regulation environmental quality regulation is complicated but many of the observed perplexities are consistent with a rent seeking self interest theory of government 46 references 1 figure 7 tables

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

organizing emissions trading the barrier of domestic permit allocation abstract this paper uses a barrier model of politics to analyse the issue of permit allocation as a major political obstacle to organizing inter national greenhouse gas emissions trading it is argued that permit allocation constitutes a barrier because among other things various types of emitters have conflicting interests in trying to lobby for as much allocated permits as possible and because international differences in domestic permit allocation procedures are perceived to potentially distort inter firm competitiveness relations permit allocation is circumvented by applying intergovernmental or project based emissions trading the project approach is preferable in particular because it avoids the trading of hot air

tradable fuel economy credits competition and oligopoly corporate average fuel economy cafe regulations specify minimum standards for fuel efficiency that vehicle manufacturers must meet independently we design a system of tradeable fuel economy credits that allows trading across vehicle classes and manufacturers with and without considering market power in the credit market we perform numerical simulations to measure the potential cost savings from moving from the current cafe system to one with stricter standards but that allows vehicle manufacturers various levels of increased flexibility we find that the ability for each manufacturer to average credits between its cars and trucks provides a large percentage of the potential savings as expected the greatest savings come from the greatest flexibility in the credit system market power lowers the potential cost savings to the industry as a whole but only modestly loss in efficiency from market power does not eliminate the gains from credit trading

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

exploring the determinants and long term performance outcomes of corporate carbon strategies abstract so far research has insufficiently addressed the long term effectiveness of business responses to climate change in delivering actual outcomes the aim of this article is therefore to analyze the determinants of such strategies and their influence on firms financial and carbon performance over time it is argued that corporate carbon strategies have three main objectives carbon governance carbon reduction and carbon competitiveness to assess the complex interactions between these strategic objectives their determinants and outcomes an integrative structural equation model is developed and empirically tested data are sourced from a global sample of 45 leading enterprises from the steel cement and automotive sector including some of the largest ghg emitters in the world in order to account for the long term impacts of strategies the firm level change in financial and carbon performance is calculated by comparing two different points in time namely 2008 and 2013 the results provide empirical evidence for the positive effect of institutional and stakeholder pressure on emission reduction activities proof for a positive impact of carbon pressure on organizational capabilities and corporate competitiveness in the context of climate change cannot be established surprisingly the results also indicate no relationship between carbon reduction activities and long term improvements in carbon performance however such measures are linked to long term financial gains advancements in carbon performance in turn are not found to be associated with economic benefits

the effect of environmental regulation on optimal plant size and factor shares the method for measuring the effects of environmental regulation on the size distribution of industrial plants and the distribution of factor shares described in this paper focuses on the 20 industries with highest per unit pollution abatement costs and the 20 with the lowest costs the study finds that compliance with environmental laws has not only reduced the number of plants in the affected industries but has placed a greater burden on small rather than on large plants besides redistributing within industry market shares environmental regulation has increased the use of capital relative to labor although the disproportionate burden placed on small plants in the high abatement cost industries may have been unintended it is likely that large firms will be less vocal opponents of environmental regulation than are small firms 22 references 12 tables

permit trading and credit trading a comparison of cap based and rate based emissions trading under perfect and imperfect competition this paper compares emissions trading based on a cap on total emissions permit trading and on relative standards per unit of output credit trading two types of market structure are considered perfect competition and cournot oligopoly we find that output abatement costs and the number of firms are higher under credit trading allowing trade between permit trading and credit trading sectors may increase welfare with perfect competition permit trading always leads to higher welfare than credit trading with imperfect competition credit trading may outperform permit trading environmental policy can lead to exit but also to entry of firms entry and exit have a profound impact on the performance of the schemes especially under imperfect competition we find that it may be impossible to implement certain levels of total industry emissions under credit trading several levels of the relative standard can achieve the same total level of emissions

modeling competitive firms performance under price sensitive demand and cap and trade emissions constraints abstract this study analytically examines the effects on profitability of using an emissions cap and trade policy a game theoretic cournot model with two competitive firms producing goods along with undesirable emissions for a single market is investigated production costs are non linear and product demand is price sensitive first relationships are derived to maximize each firm s profit under a given emissions permit price and given emissions constraints or caps production volumes for each firm at the equilibrium are determined with and without the assumption that emissions permit trading can occur relationships are then developed to investigate behavior as a function of emissions caps the allocation of caps between firms and the emissions permit price bounds on the ranges within which permit trading will occur are also determined results show the conditions under which profits rise or fall as emissions constraints are tightened the conditions under which firms benefit equally from emissions permit trading are also developed finally the analysis shows that the firm with the lower emissions intensity will never purchase emissions permits if its operational costs are higher than those of the competitor therefore cap and trade will not necessarily provide an incentive for the firm with the lowest emissions intensity to increase its market share

cost raising strategies advantage rivals by raising their costs in this paper we show that strategies designed to raise rivals costs have a number of advantages over predatory pricing they are credible do not necessarily require the victim to exit and do not necessarily require the existence of classical market power the paper sets up a general model proves a number of general results and then applies the model to specific strategies involving overbuying inputs and vertical integration

free entry and social inefficiency our goal is to provide a simple yet general exposition of the conditions under which the number of entrants in a free entry equilibrium is excessive insufficient or optimal our analysis compares the number of firms that enter a market when there is free entry with the number that would be desired by a social planner who is unable to control the behavior of firms once they are in the market that is we consider the second best problem of choosing the welfare maximizing number of firms while we take as given their noncompetitive behavior after entry we demonstrate that the crucial conditions for establishing the presence of an entry bias can be stated quite simply in terms of the outcome of the postentry game played by entrants in contrast to previous work we do not need to model this postentry game explicitly

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

the effect of allowance allocations on cap and trade system performance abstractan implication of the coase theorem is that under certain conditions the market equilibrium in a cap and trade system will be cost effective and independent of the initial allocation of tradable rights that is the overall cost of achieving a given aggregate emission reduction will be minimized and the final allocation of permits will be independent of the initial allocation we call this the independence property this property is important because it means that the government can establish the overall pollution reduction goal for a cap and trade system by setting the cap and leaving it up to the legislature to construct a constituency in support of the program by allocating the allowances to various interests without affecting either the environmental performance of the system or its aggregate social costs we examine the conditions under which the independence property is likely to hold both in theory and in practice

economic implications of emissions trading rules for local and regional pollutants in 1975 the united states environmental protection agency initiated an historic process of regulatory reform now known as the emissions trading program for nonuniformly mixed pollutants such as sulfur dioxides air quality is a function not only of the level of emissions but their location and stack heights as well the focus of this paper is how to protect local air quality and limit long range pollutant deposition caused by emission trades while allowing as much cost reducing trading activity as possible the authors examine the implications of two trading rules in two different airsheds using programming simulation models they find that the use of either trading rule represents a substantial improvement over relying exclusively on the current allocation of control responsibility

trends and determinants of corporate non financial disclosure in greece an increasing number of business organizations around the world engage in the accounting for and reporting on non financial aspects of performance mainly within the domains of social and environmental responsibility using a composite disclosure index this study investigates the status of the non financial disclosure practices of the top 100 companies operating in greece a number of determinants which potentially drive greek firms to publicly disclose such information are examined an investigation of the reporting practices of a subgroup of firms which is on the spotlight regarding their environmental performance is performed while overlapping perspectives for the greek case are outlined the analysis suggests that only a small group of leading greek firms appears to endorse a meaningful business and society dialogue as an instrument for stakeholder communication and the discharging of organizational accountability most other corporations still tend to treat such practices superficially and in an imprecise manner

market power and hot air in international emissions trading the impacts of us withdrawal from the kyoto protocol ten years after the initial climate change convention from rio in 1992 the industrialized world is finally likely to ratify the kyoto protocol which will impose legally binding greenhouse gas emission reductions on the developed world however the kyoto protocol will enter into force without the usa which withdrew under president bush in march 2001 accounting for hot air and market power of the former soviet union on emission permit markets it is shown that us withdrawal has important consequences on environmental effectiveness compliance costs and excess costs of market power under the kyoto protocol non compliance of the usa implies a dramatic decrease in environmental effectiveness as well as compliance costs of oecd countries whereas the former soviet union and transitional economies in eastern europe suffer from a huge decline in permit sales revenues excess costs of market power in permit trade increase in relative terms but decline substantially in absolute terms due to us withdrawal pol

the heterogeneity of socially responsible investment many writers have commented on the heterogeneity of the socially responsible investment sri movement however few have actually tried to understand and explain it and even fewer have discussed whether the opposite standardisation is possible and desirable in this article we take a broader perspective on the issue of the heterogeneity of sri we distinguish between four levels on which heterogeneity can be found the terminological definitional strategic and practical whilst there is much talk about the definitional ambiguities of sri we suggest that there is actually some agreement on the definitional level there are at least three explanations which we suggest can account for the heterogeneity on the other levels cultural and ideological differences between different regions differences in values norms and ideology between various sri stakeholders and the market setting of sri discussing the implications of the three explanations for the sri market we suggest that there is reason to be sceptical about the possibilities of standardisation if not standardisation is imposed top down whether this kind of standardisation is desirable or not we argue depends on what the motives for it would be to the extent that standardisation may facilitate the mainstreaming of sri it could be a good thing but we entertain doubts about whether mainstreaming really requires standardisation

on the efficiency of competitive markets for emission permits it is typical for economists and policy makers alike to presume that competitive markets allocate emission permits efficiently this paper demonstrates that competition in the emission permits market cannot assure efficiency when the product market is oligopolistic we provide the conditions under which a bureaucratic mechanism is welfare superior to a tradeable emission permits system price taking behaviour in the permits market ensures transfer of licenses to the less efficient in abatement firms which then become more aggressive in the product market acquiring additional permits as a result the less efficient firms end up with a higher than the welfare maximizing share of emission permits if the less efficient in abatement firms are also less efficient in production competitive trading of permits may result in lower output and welfare

carbon capture and storage and transboundary pollution a differential game approach abstract we study the strategic behavior of two countries facing transboundary co2 pollution under a differential game setting in our model the reduction of co2 concentration occurs through the carbon capture and storage process rather than through the adoption of cleaner technologies furthermore we first provide the explicit short run dynamics for this dynamic game with symmetric open loop and a special markovian nash strategy then we compare these strategies at the games steady states and along some balanced growth paths our results show that if the initial level of co2 is relatively high state dependent emissions reductions can lead to higher overall environmental quality hence feedback strategy leads to less social waste

trade offs in designing markets with multiple objectives abstract this paper explores some of the problems involved in designing markets with multiple objectives the first part of the paper considers the issue of how such markets are designed in theory while the second part reviews some evidence on actual applications in the field of air pollution control

auctions and alternative procedures for allocating pollution rights this paper considers two different types of auctions which the government could use to sell discharge rights 1 an auction where rights are sold for a single clearing price and 2 a special type of discriminating auction that discourages strategic manipulation of bids by individual dischargers based on both theoretical and practical considerations there appears to be a fundamental trade off between reducing the financial burden of rights purchases and eliminating the incentives for strategic behavior very few discharges in either case study would have lower expenses under government sales of rights than under uniform treatment the simulations also suggest that there may be opportunities for strategic behavior under nonincentive compatible procedures because of small numbers of dischargers despite its problems with respect to incentive compatibility the right allocation approach of free distribution followed by exchange may offer the most desirable package of features this approach can yield dischargers savings over the expenses of present uniform regulations as well as provide incentives for efficient allocation of treatment efforts 25 references 1 figure 5 tables

a curse on several houses suppose that the consumer has the choice among a a zero yield and zero risk asset b a high yield and excessively risky asset c a low yield and zero risk asset and d some real asset if we restrict the consumer to the first two he will select the first one called speculative balances in our world in which the consumer has all four choices he will never select these balances one economist see my 1976 paper wasted almost two pages of the journal of economic literature proving that a consumer will prefer a positive risk free income to zero income three economists winston chang daniel hamberg junichi hirata 1983 wasted eight pages and some matrix algebra on a renewed effort to persuade the profession of the same thing linear extrapolation suggests that a renewed effort will become due in 1990 but the problem is more serious given that the demand for speculative balances must be zero chang et al ask p 46 why so many texts analyze the demand for them i would add that these texts go on to raise the specter of a price theoretic monstrosity an infinite demand for speculative balances the liquidity trap and its devastating consequences for monetary policy this is not unusual texts give much space to the theory that current consumption is deternmined by unmeasurable future income about which each of us forms only vague and changeable guesses see my 1979 paper the pigou effect is explained to undergraduates even though its currency base don patinkin 1969 p 1154 is a microscopic fraction of national wealth and even though the effect is theoretically superfluous see my 1982 paper many other such cases could be mentioned let me speculate why pedagogic failures litter our texts the suppliers prefer to sell thick expensive books many of the intermediaries attract and impress students by endowing our field with more scientific content than it actually has and the captive demanders are not given protection by rigorous and extensive journal reviews of what should be the cornerstone of economics the textbooks thus they are forced to use frank knight s felicitous phrase to know too many things that just ain t so

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

welfare consequences of emission credit trading programs abstract the welfare consequences of moving from a command and control approach to pollution control to an emission credit trading program that attains the same environmental quality are shown to depend on the competitiveness of the output markets in which polluting firms compete if the output markets are competitive then the introduction of trading increases aggregate welfare in contrast if the output markets in which these firms participate are not competitive then the adoption of an emission credit trading program may reduce social welfare this is so even if emission credit markets are perfectly competitive

taxes versus tradable discharge permits a review in the light of the u s and european experience the u s and west european environmental protection programs have incorporated different economic instruments for controlling pollution the u s has made extensive use of tradable permits of several forms but has never used direct pollution taxes the countries of the european community have long used an array of pollution taxes but have never used tradable permits a review and critique of these experiences and an analysis of the attributes of taxes and tradable permits seeks identify the strengths and weaknesses of each instrument and to provide guidelines for the successful implementation of each system

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

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

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

does environmental regulation create merger incentives this paper studies merger incentives for polluting cournot firms under a competitive tradable emission permits market we find that when firms are symmetric and marginal costs are constant an horizontal merger is welfare enhancing if efficiency gains are high enough for the merger to take place the presence of a competitive or monopolistic outside market that also trades in the permits market makes profitable a merger that would not happen otherwise when firms are vertically related in an input output chain an horizontal merger in one of the markets increases profits in the other market due to the permits price decrease finally we consider an oligopoly fringe model in which firms differ in their marginal production costs a merger between the dominant oligopolistic firms decreases the permits price and is always profitable such setting is relevant to assess the observed mergers between power generators in several market for permits like the regional greenhouse gas initiative rggi allowing us to derive some policy recommendations

the political economy of pollution markets historical lessons for modern energy and climate planners this article explores some of the central economic and political problems with the use of tradable permits to solve environmental problems drawing from transaction cost economics political economy and market theory it does so by looking at the history of three programs for curbing pollution in the united states the clean air act the leaded gasoline phase out and water permits in wisconsin the article begins by briefly summarizing the history of each of these programs before looking at a host of challenges related to political compromises in program design transaction costs spatial distortions such as geographic sensitivity and wrong way trading of credits temporal distortions such as the episodic nature of pollution and volatility of market prices and market abuses these concerns are raised with an eye for how historical experience may inform the current debate about how to design effective market mechanisms to respond to climate change and other forms of energy related environmental degradation

the empirical properties of two classes of designs for transferable discharge permit markets abstract previous work by atkinson and lewis j environ econ manag 1 237 250 1974 and anderson et al an analysis of alternative policies for attaining and maintaining a short term no2 standard mathtech inc princeton n j 1979 has indicated the tremendous cost advantages to be achieved by moving from a policy based on emission standards to one based on marketable emission permits as tietenberg land econ 56 391 416 1980 points out however neither of the major permit designs treated in the literature are optimal from all points of view this has triggered a search for alternative permit designs which while they may not minimize compliance costs have sufficient other virtues as to make them attractive on other grounds the purpose of this paper is to examine within the context of an empirical mathematical programming model the air quality emission and cost consequences of two classes of the permit designs which can be implemented in the absence of information on control costs this case study involves particulate control in st louis

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

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

performance versus design standards in the regulation of pollution abstract this paper presents a model of pollution regulation in an oligopolistic market two forms of regulation are considered performance standards which regulate pollution directly by an upper limit on emissions and design standards which regulate pollution indirectly by a minimum usage requirement of an enissions control input equilibria under each regulatory regime are characterized a welfare analysis reveals that performance standards are preferred to design standards if the objective is minimization of emissions plus pollution damage costs however the comparison is indeterminate if the regulator s objective is total surplus less pollution damage an equivalence between emissions taxes and performance standards is established so the above welfare comparisons also apply to emissions taxes versus design standards

liquidity preference as behavior toward risk is a demand for short term securities not money in 1958 james tobin generalized the keynesian theory of liquidity preference by means of his famous portfolio model in which the demand for money narrowly defined is treated as behavior towards interest risk whatever merit this theory may have had then has long since been questionable the reason is the existence of a large set of substitutes for money typically short term money market instruments which can be regarded as riskless or virtually so and which pay substantial interest the availability of these instruments would appear to make tobin s theory that money is held to cope with interest risk resemble a scenario without a recognizable cast of actors in the literature on monetary theory other authors have also expressed misgivings about the tobin theory by noting that savings and nontransferable time deposits have the same risk properties as money but pay interest see for example robert barro and stanley fischer 1976 although correct the allusion to these deposits is simplistic it is true that while both types mimic money s freedom from interest risk in the conventional sense of capital loss time deposits are still exposed to a kind of interest risk because they can be liquidated before maturity only with interest penalty more important business firms are either denied access to savings deposits or as in the united states can hold a maximum of 150 000 per account at commercial banks thereby effectively eliminating large firms as holders furthermore although business firms can own most time deposits they typically do not except for negotiable cds a money market instrument they are loath to tie up funds in long term maturities and they can usually obtain the same or higher yields on other types of short term debt instruments that are also negotiable in the united states households have long accounted for about one third of demand deposits business firms owning most of the rest therefore any effort to rest a case against the tobin theory of money demand on the existence of savings and time deposits gets at only a small part of the problem this stricture extends to so called now and ats accounts these interest bearing demand deposits disguised under other names are also denied to business firms for them the short term instruments of the money market are the principal alternative to money in asset portfolios

labor market distortions and welfare decreasing international emissions trading using a multi region multi sector computable general equilibrium model this paper analyzes the effects of international emissions trading iet with a focus on labor market distortions we construct four separate models with several different labor market specifications 1 a model without labor market distortions 2 a model with taxinteraction effects in the labor market 3 a model with a minimum wage and 4 a model in which a wage curve determines wages we use these models to analyze how the effects of iet change according to model specification the main results from the analysis are as follows first we found that iet generates gains for all participants in the model without labor market distortions second even in the models with labor market distortions importers of emissions permits are highly likely to benefit conversely we show that the possibility of a welfare loss from iet is not as small for exporters of permits in particular in the minimum wage and wage curve models we found that the exporters of emissions permits are likely to be disadvantaged however this also depends on the region in question for example china is likely to suffer under iet whereas russia is likely to benefit finally if we implement policies to alleviate labor market distortion simultaneously with emissions regulation all regions receive benefit from iet

a note on clean technology adoption and its influence on tradeable emission permits prices in this paper we give an example in which the price of tradable emission permits increases despite firms adoption of less polluting technology a result that is in contrast with montero j environ econ 44 23 44 2002 and parry j regul econ 14 229 254 1998 among others if two cournot players switch to a cleaner technology the price for permits may increase due to an increase in the net demand for permits and a decrease in the net supply of permits after the clean technology is adopted this is only the case when output demand is quite elastic

tradable emission rights and strategic interaction the use of tradable emission rights as environmental policy instruments may affect the conditions for strategic interaction between regulated firms and thus have implications for competition policy this paper presents an analysis of how and under what conditions emission rights can be used strategically by oligopolistic firms for predatory and exclusionary purposes

on the efficiency of competitive markets for operating licenses some economists and policy makers have suggested that market allocation of scarce operating licenses broadcasting licenses and airport slots for instance would lead to their efficient use this paper demonstrates that a competitive market allocation of operating licenses whether attained through auctioning selling or allowing resale of the rights does not in general assure efficiency the profit criterion that would guide the allocation of licenses in a competitive market would not necessarily lead to the uses that maximize social benefits the paper shows that the difference between private and social incentives in the allocation process can be quite large the theory is then applied to discussions of allocating airport takeoff and landing slots and broadcasting licenses

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

does voluntary carbon reporting meet investors needs abstract through initiatives such as the carbon disclosure project investors have encouraged companies to report on their climate change related risks and opportunities their greenhouse gas emissions and their climate change management systems and processes despite the large number of companies that now report climate change related information investors have consistently criticised companies for not providing information that can be readily used in investment decision making companies in turn have criticised investors for not utilising the information that they provide this article taking the case of the uk retail sector analyses the reasons for this debate between companies and their investors it concludes that there are two factors at play the first is that while investors have encouraged companies to report they have at least to date paid much less attention to the quality of the reported information the second is that company reporting on climate change falls far short of the quality required for investors to make meaningful comparisons between companies this in turn has limited investor interest in these data the article considers the potential for mandatory reporting to address these problems and concludes that mandatory reporting is at best a partial solution and that it is a combination of voluntary and mandatory reporting underpinned by active investor interest in the data being reported that offers the greatest potential for progress

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

ten years of corporate action on climate change what do we have to show for it abstract a significant proportion of the world s greenhouse gas emissions can be attributed directly or indirectly to corporate activities an increasing number of companies have set targets and have adopted initiatives to reduce their greenhouse gas emissions raising the question of what sorts of outcomes can realistically be expected from corporate action on climate change this paper aims to shed some light on this issue through an analysis of the climate change performance of the uk supermarket sector this sector is directly responsible for around 1 of uk greenhouse gas emissions but it has been estimated that indirectly it may be responsible for up to 10 of emissions in the period between 2000 and 2010 the major uk supermarkets transformed their approach to climate change this paper examines the outcomes that resulted from these actions it finds that there have been significant and steady improvements in energy efficiency but that these efficiency gains are often outstripped by the impacts of business growth for most companies short of a radical redesign of their business activities or an expansion of the scope of their energy management initiatives to include their indirect emissions total greenhouse gas emissions will tend to increase over time

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

tradeable emission permits regulations in the presence of imperfectly competitive product markets welfare implications in the present paper we analyse the interaction of a competitive market for emission permits with an oligopolistic product market it is well known that a competitive permits market achieves the cost minimizing distribution of abatement effort among the polluting firms for a given reduction in emissions however when the product market is oligopolistic it may redistribute production inefficiently among firms it has been suggested that this inefficiency can outweigh the gains obtained from using emission permits instead of command and control although this argument is clearly correct under full information it is shown in the present paper that it reverses under incomplete information in particular it is shown that when tradeable emission permits are specified according to the standard textbook example they yield higher social welfare than the command and control regulation