Alternative Intertemporal Permit Trading Regimes with Stochastic Abatement Costs

Hongli Feng and Jinhua Zhao

Center for Agricultural and Rural Development (CARD) Publications from Center for Agricultural and Rural Development (CARD) at Iowa State University

Abstract: We examine the social efficiency of alternative intertemporal permit trading regimes. Banking with a 1-to-1 ratio and with a non-unitary intertemporal trading ratio (ITR) are compared with each other and with the no-banking permit trading regime. The more industry-wide shocks vary, and/or the more they are negatively correlated across time, the more efficient is a bankable permit regime. When the slope of the benefit function is greater than the slope of the damage function, banking with ITR=1+r is more efficient than a no-banking regime. Banking with ITR=1 can be more efficient than a no-banking regime. However, whether ITR=1 or ITR=1+r is better depends on the covariance structure of the shocks and the benefit and damage functions.

Keywords: bankable permits; permit banking and borrowing (search for similar items in EconPapers)
Date: 2002-11
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Related works:
Journal Article: Alternative intertemporal permit trading regimes with stochastic abatement costs (2006)
Working Paper: Alternative intertemporal permit trading regimes with stochastic abatement costs (2006)
Working Paper: Alternative Intertemporal Permit Trading Regimes with Stochastic Abatement Costs (2002)
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