On the Sequential Choice of Tradable Permit Allocations

Ian MacKenzie

No 08/83, CER-ETH Economics working paper series from CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich

Abstract: This paper investigates the sequential announcement of domestic emissions caps by regulators in a federal or international-based tradable pollution permit market for a transboundary pollutant. A leader-follower framework is used to analyse the consequences of regulators sequentially announcing domestic allocation caps. We find the sequential choice of domestic allocation caps is sub-optimal and depends on the follower's reaction to the leader's choice. Furthermore, the marginal damage and the degree to which allocations are substitutes or complements affects whether the leader changes from being a net permit buyer (seller) of permits to a seller (buyer).

Keywords: Initial allocation; international tradable permit market; leader-follower (search for similar items in EconPapers)
JEL-codes: D78 L13 Q28 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2008-03
New Economics Papers: this item is included in nep-dcm, nep-ene and nep-env
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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