Bankruptcy Risk and the Performance of Tradable Permit Markets

U of Massachusetts Economics Working Paper No. 2007-9

20 Pages Posted: 16 Sep 2007

See all articles by John Stranlund

John Stranlund

University of Massachusetts at Amherst - College of Natural Resources & the Environment - Department of Resource Economics

Wei Zhang

University of Massachusetts Amherst

Date Written: August 2007

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: bankruptcy, tradable permits, permit markets

JEL Classification: L51, Q28, Q58

Suggested Citation

Stranlund, John and Zhang, Wei, Bankruptcy Risk and the Performance of Tradable Permit Markets (August 2007). U of Massachusetts Economics Working Paper No. 2007-9, Available at SSRN: https://ssrn.com/abstract=1014386 or http://dx.doi.org/10.2139/ssrn.1014386

John Stranlund (Contact Author)

University of Massachusetts at Amherst - College of Natural Resources & the Environment - Department of Resource Economics ( email )

Stockbridge Hall
80 Campus Center Way
Amherst, MA 01003-9246
United States
413-545-6328 (Phone)

Wei Zhang

University of Massachusetts Amherst ( email )

Department of Operations and Information Managemen
Amherst, MA 01003
United States
413 545-5853 (Fax)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
52
Abstract Views
630
rank
510,939
PlumX Metrics