Pooling of Uncertainty: Enforcing Tradable Permits Regulation when Emissions are Stochastic

Janusz Mrozek () and Andrew Keeler

Environmental & Resource Economics, 2004, vol. 29, issue 4, 459-481

Abstract: An under-appreciated advantage of tradable permits regulation is its ability to create better decision-making when emissions are stochastic. In general, the distribution of stochastic actual emissions around intended emissions results in over- or under-compliance. Permit tradability reduces the extent to which actual aggregate emissions deviate from regulatory targets, by giving firms an additional mechanism for responding to uncertainty. We construct a two period model of permit regulation with ex post enforcement to demonstrate how the permit market distributes uncertainty, and to illustrate the importance of expectations toward permit market outcomes. Copyright Kluwer Academic Publishers 2004

Keywords: enforcement; environmental regulation; stochastic emissions; tradable permits; uncertainty (search for similar items in EconPapers)
Date: 2004
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Citations: View citations in EconPapers (6)

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DOI: 10.1007/s10640-004-1043-0

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