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Efficient Pollution Regulation: Getting the Prices Right: Comment

Art Fraas and Randall Lutter ()

American Economic Review, 2012, vol. 102, issue 1, 602-07

Abstract: The cost-effectiveness of cap-and-trade emissions regulations has become widely accepted. A 2009 proposal by Muller and Mendelsohn would replace conventional ton-for-ton trading with trading based on estimates of marginal damages by pollutant and by source. This proposal faces difficulties arising from the negative marginal damage estimates--neglected in Muller and Mendelsohn (2009)--for nitrogen oxide (NO x ) emissions from many urban counties. Such estimates imply nonconvexities in air chemistry that complicate trading and could result in trades that increase emissions by both buyer and seller. Uncertainty in source-specific damages also creates rent-seeking opportunities and the potential for costly litigation. (JEL H53, Q53, Q58)

Date: 2012
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Handle: RePEc:aea:aecrev:v:102:y:2012:i:1:p:602-07