Multipollutant Markets

Juan-Pablo Montero

RAND Journal of Economics, 2001, vol. 32, issue 4, 762-74

Abstract: I study the optimal design of marketable permit systems to regulate various pollutants (e.g., air pollution in urban areas) when the regulator lives in a real world of imperfect information and incomplete enforcement. I show that the regulator should hale pollution markets integrated through optimal exchange rates when the marginal-abatement cost curves in the different markets are steeper than the marginal-benefit curves; otherwise he should keep markets separated. I also find that incomplete enforcement reduces the advantage of market integration. Copyright 2001 by the RAND Corporation.

Date: 2001
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