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Cap-and-trade, taxes, and distributional conflict

Ian MacKenzie () and Markus Ohndorf ()

Journal of Environmental Economics and Management, 2012, vol. 63, issue 1, 51-65

Abstract: Enacting market-based environmental regulation, such as emissions taxes and cap-and-trade programs, often create rents that are contested by agents. In this paper, we create a framework that compares social welfare from alternative market-based environmental policy instruments under the presence of rent seeking. We show that, contrary to the commonly held view, non-revenue-raising instruments (NRRIs) are in many cases preferable over revenue-raising instruments (RRIs). We find that the choice of instrument depends on the size of a potential revenue-recycling effect and the level of preassigned rents.

Keywords: Cap-and-trade; Environmental tax; Rent seeking (search for similar items in EconPapers)
Date: 2012
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DOI: 10.1016/j.jeem.2011.05.002

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Journal of Environmental Economics and Management is currently edited by M.A. Cole, A. Lange, D.J. Phaneuf, D. Popp, M.J. Roberts, M.D. Smith, C. Timmins, Q. Weninger and A.J. Yates

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