Tradable Permits vs. Ecological Dumping

31 Pages Posted: 23 Feb 2010

See all articles by Fabio Antoniou

Fabio Antoniou

Athens University of Economics and Business

Panos Hatzipanayotou

Athens University of Economics and Business; CESifo (Center for Economic Studies and Ifo Institute)

Phoebe Koundouri

Athens University of Economics and Business - Department of International and European Economic Studies; University of Reading - Department of Economics

Date Written: February 22, 2010

Abstract

In this paper we examine an alternative policy scenario, where governments allow polluting firms to trade permits in a strategic environmental policy model. We demonstrate, among other things, that with no market power in the permits market, governments of the exporting firms do not have an incentive to under-regulate pollution in order to become more competitive. This strategic effect is reversed and leads to a welfare level closer to the cooperative one and strictly higher to that when permits are non-tradable. Allowing for market power in the permits market, the incentive to under-regulate pollution re-appears regardless of whether permits are tradable or not. With tradable permits, however, the incentive to under-regulate pollution is comparatively weaker relative to the case of non-tradable permits. This entails potential benefits for the exporting firms and countries since the prisoners’ dilemma is moderated.

Keywords: Strategic Environmental Policy, Tradable Permits, Race to the top

JEL Classification: Q58, F12, F18

Suggested Citation

Antoniou, Fabio and Hatzipanayotou (Xatzipanagiotou), Panagiotis (Panos) and Koundouri, Phoebe, Tradable Permits vs. Ecological Dumping (February 22, 2010). FEEM Working Paper No. 2.2010, Available at SSRN: https://ssrn.com/abstract=1556965 or http://dx.doi.org/10.2139/ssrn.1556965

Fabio Antoniou

Athens University of Economics and Business ( email )

Patission Str.
Athens, 10434
Greece

Panagiotis (Panos) Hatzipanayotou (Xatzipanagiotou) (Contact Author)

Athens University of Economics and Business ( email )

76 Patission Street
Athens, 104 34
Greece

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Phoebe Koundouri

Athens University of Economics and Business - Department of International and European Economic Studies ( email )

GR-10434 Athens
Greece
+0030 210 8203147 (Phone)
+0030 210 8214122 (Fax)

HOME PAGE: http://www.econ.ucl.ac.uk/downloads/koundouri/cv.pdf

University of Reading - Department of Economics ( email )

Reading, RG6 6AA
United Kingdom
+44 - (0)118 - 9875123 (Phone)
+44 - (0)118 - 9750236 (Fax)

HOME PAGE: http://www.rdg.ac.uk/economics/koundouri.html

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