Coasian rights in a cap-and-trade mechanism with damage compensations

Carlos Hervés-Beloso and Francisco Martínez-Concha ()
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Francisco Martínez-Concha: Universidad de Chile, Instituto de Sistemas Complejos de Ingeniería

European Journal of Law and Economics, 2023, vol. 56, issue 3, No 2, 425-441

Abstract: Abstract This paper revisits Coase’s ideas on property rights in a scenario where the law allows the establishment of mandatory limits - caps- to specific harmful effects of economic activity such as air pollution or traffic congestion. We propose a general equilibrium model with a cap-and-trade mechanism where agents suffering the harm share a portfolio of Coasian rights designed according to the caps. Equilibrium allocations must comply with the cap, reducing polluting emissions or switching from private to public transport. In addition, the monetary transfers that result from the sale of rights to polluters yield compensation to the harmed population, increasing the non-polluters income.

Keywords: Cap-and-trade; Coasian rights; General equilibrium; Negative externalities; Redistributive effects (search for similar items in EconPapers)
JEL-codes: D00 D51 D62 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s10657-023-09788-3

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