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Decentralization in Pollution Permit Markets

Andrew Yates

Journal of Public Economic Theory, 2002, vol. 4, issue 4, 641-660

Abstract: A pollution permit market is decentralized when firms are allowed to trade permits across time, regions or pollutants. Using a model in which firms have better information about their abatement costs than a regulator, we develop a comparative advantage formula that delineates whether or not pollution permit markets should be decentralized. When the damage from pollution is described by a separable function, the formula implies a simple sufficient condition for not allowing decentralization.

Date: 2002
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