Alternative Intertemporal Permit Trading Regimes with Stochastic Abatement Costs

Hongli Feng and Jinhua Zhao

Staff General Research Papers Archive from Iowa State University, Department of Economics

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: 2002-11-06
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Published in Resource and Energy Economics, January 2006, vol. 28 no. 1, pp. 24-40

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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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