The effects of rent seeking over tradable pollution permits

Nick Hanley and Ian MacKenzie

No 09/112, CER-ETH Economics working paper series from CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich

Abstract: The establishment of a tradable permit market requires the regulator to select a level of aggregate emissions and then distribute the associated permits (rent) to specific groups. In most circumstances, these decisions are often politically contentious and frequently influenced by rent seeking behaviour. In this paper, we use a contest model to analyse the effects of rent seeking effort when permits are freely distributed (grandfathered). Rent seeking behaviour can influence both the share of permits which an individual firm receives and also the total supply of permits. This latter impact depends on the responsiveness of the regulator to aggregate rent seeking effort. Using a three-stage game, we show that rent seeking can influence both the distribution of rents and the ex post value of these rents, whilst welfare usually decreases in the responsiveness of the regulator.

Keywords: tradable permit market; rent seeking; initial allocation (search for similar items in EconPapers)
JEL-codes: D72 D78 Q53 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2009-07
New Economics Papers: this item is included in nep-ene and nep-env
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Journal Article: The Effects of Rent Seeking over Tradable Pollution Permits (2010)
Working Paper: The effects of rent seeking over tradable pollution permits (2010)
Working Paper: The effects of rent seeking over tradable pollution permits (2009)
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