The effects of rent seeking over tradable pollution permits

Nick Hanley and Ian MacKenzie

No 2009-12, Stirling Economics Discussion Papers from University of Stirling, Division of Economics

Abstract: The establishment of a tradable permit market requires the regulator to select a level of aggregate emissions and then distribute the associated permits (rent) to specific groups. In most circumstances, these decisions are often politically contentious and frequently influenced by rent seeking behaviour. In this paper, we use a contest model to analyse the effects of rent seeking effort when permits are freely distributed (grandfathered). Rent seeking behaviour can influence both the share of permits which an individual firm receives and also the total supply of permits. This latter impact depends on the responsiveness of the regulator to aggregate rent seeking effort. Using a three-stage game, we show that rent seeking can influence both the distribution of rents and the ex post value of these rents, whilst welfare usually decreases in the responsiveness of the regulator.

Keywords: tradable permit market; rent seeking; initial allocation (search for similar items in EconPapers)
Date: 2009-05
New Economics Papers: this item is included in nep-ene and nep-env
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Citations: View citations in EconPapers (1)

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http://hdl.handle.net/1893/1197

Related works:
Journal Article: The Effects of Rent Seeking over Tradable Pollution Permits (2010)
Working Paper: The effects of rent seeking over tradable pollution permits (2010)
Working Paper: The effects of rent seeking over tradable pollution permits (2009)
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