Do Permit Allocations Matter?
Harrie A. A. Verbon
Tilburg University - CentER; CESifo (Center for Economic Studies and Ifo Institute)
Free University of Amsterdam; Tilburg University
November 9, 2010
CESifo Working Paper Series No. 3236
In the standard setting a system of tradable permits is effective and cost-efficient in attaining the policy objective of pollution reduction. This outcome is challenged in case of a tradable permit system in a federal system/constitution with individual states having discretionary power regarding environmental policy and where pollution is transboundary across states. This paper explores the opportunities of the central authority to influence the effectiveness and efficiency of the system, under various institutional arrangements, through the initial allocation of permits.
Number of Pages in PDF File: 19
Keywords: tradable permits, fiscal federalism
JEL Classification: H21, H23, Q00
Date posted: November 10, 2010