Three papers on Cap-and-Trade regulations

Xinyu Guo

ISU General Staff Papers from Iowa State University, Department of Economics

Abstract: This dissertation explores the economic implications of cap-and-trade (CAT) regulations, focusing on the roles of subsidies, cost heterogeneity, and strategic behaviors in shaping market outcomes. The first chapter examines the distortionary and distributional effects of various subsidy types, revealing how quota, variable-cost, and capital subsidies impact firm entry, production efficiency, and income distribution. The second chapter introduces a structural model for cost estimation within CAT frameworks, leveraging firm-level optimizations and market equilibrium to capture heterogeneity in production costs. The third chapter investigates strategic underproduction as a source of market inefficiency, demonstrating how firms may restrict output to raise prices, and discusses how ownership limits can mitigate these effects. Together, these studies provide insights into optimizing CAT policies to enhance economic efficiency and equity within quota-regulated markets.

Date: 2025-02-11
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