Bankruptcy Risk and the Performance of Tradable Permit Markets

John Stranlund () and Wei Zhang

No 7384, Working Paper Series from University of Massachusetts, Amherst, Department of Resource Economics

Abstract: We study the impact of bankruptcy risk on markets for tradable environmental and natural resource permits. We find that firms that risk bankruptcy demand more permits than if they were financially secure. Consequently, bankruptcy risk in a competitive market for tradable property rights causes an inefficient distribution of individual choices among regulated firms. Moreover, the equilibrium distribution of permits is not independent of the initial distribution of permits. In fact, the inefficiency that is associated with bankruptcy risk is mitigated if financially insecure firms are given a larger share of the initial allocation of permits.

Keywords: Environmental; Economics; and; Policy (search for similar items in EconPapers)
Pages: 20
Date: 2007
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Related works:
Journal Article: Bankruptcy risk and the performance of tradable permit markets (2008)
Working Paper: Bankruptcy Risk and the Performance of Tradable Permit Markets (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:umamwp:7384

DOI: 10.22004/ag.econ.7384

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