A Permit Allocation Contest for a Tradable Pollution Permit Market

Arbeitspapier

In this paper we advocate a new initial allocation mechanism for a tradable pollution permit market. We outline a Permit Allocation Contest (PAC) that distributes permits to firms based on their rank relative to other firms. This ranking is achieved by ordering firms based on an observable 'external action' where the external action is an activity or characteristic of the firm that is independent of their choice of emissions in the tradeable permit market. We show that this mechanism efficiently allocates permits and, as a result, the tradeable permit market is cost-effective. We determine the symmetric equilibrium strategy of each firm in choosing their external action and find the choice is influenced by the firm's cost structure and the regulator's choice of permit allocation schedule (distribution of permits to the market). Furthermore, we investigate the factors that determine the regulator's choice of optimal permit allocation schedules.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Economics Working Paper Series ; No. 08/82

Classification and Topics

• Classification: Wirtschaft ; Auctions ; Renewable Resources and Conservation: Water
• Subject: Rank-order contests ; pollution permits ; initial allocation ; Emissionshandel ; Allokation ; Auktionstheorie ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): MacKenzie, Ian A. ; Hanley, Nick ; Kornienko, Tatiana
• Event: Veröffentlichung
• (who): ETH Zurich, CER-ETH - Center of Economic Research
• (where): Zurich
• (when): 2008

Further information

• DOI: doi:10.3929/ethz-a-005562739
• Handle: http://hdl.handle.net/10419/171525
• Last update: 10.03.2025, 11:44 AM CET