The Economics of Water Quality Trading

James Shortle and Richard Horan

International Review of Environmental and Resource Economics, 2008, vol. 2, issue 2, 101-133

Abstract: Textbook pollution permit trading markets are appealing due to simple market designs and their ability to solve allocation problems without firm-specific information. Neither of these features is true for water quality markets, which may explain why emerging programs in this area have with few exceptions not fulfilled the promise of trading. We review water quality trading programs, and examine market design by focusing on three tasks that must be addressed to cost-effectively achieve environmental targets: (i) defining the point and nonpoint commodities to be traded, (ii) defining rules governing exchanges of the commodities, and (iii) setting caps on the commodity supplies so as to achieve an environmental target. Our examination of the third task, the cap and its role in determining trading rules (e.g., trading ratios), is novel. We examine this task from both an ecological and an economic perspective, and obtain new insights about the challenges of designing water quality trading programs.

Keywords: Permit trading; Environmental markets; Environmental policy design; Nonpoint source pollution; Stochastic emissions (search for similar items in EconPapers)
JEL-codes: Q53 Q58 (search for similar items in EconPapers)
Date: 2008
References: Add references at CitEc
Citations: View citations in EconPapers (15)

Downloads: (external link)
http://dx.doi.org/10.1561/101.00000014 (application/xml)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:now:jirere:101.00000014

Access Statistics for this article

More articles in International Review of Environmental and Resource Economics from now publishers
Bibliographic data for series maintained by Lucy Wiseman ().