Do Permit Allocations Matter?

19 Pages Posted: 10 Nov 2010

See all articles by Harrie A. A. Verbon

Harrie A. A. Verbon

Tilburg University - CentER; CESifo (Center for Economic Studies and Ifo Institute)

Cees Withagen

Free University of Amsterdam; Tilburg University

Date Written: November 9, 2010


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.

Keywords: tradable permits, fiscal federalism

JEL Classification: H21, H23, Q00

Suggested Citation

Verbon, Harrie A. A. and Withagen, Cees A. M., Do Permit Allocations Matter? (November 9, 2010). Available at SSRN: or

Harrie A. A. Verbon (Contact Author)

Tilburg University - CentER ( email )

Department of Economics
P.O. Box 90153
5000 LE Tilburg
+31 13 466 28 78 (Phone)
+31 13 466 30 42 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679

Cees A. M. Withagen

Free University of Amsterdam ( email )

Tinbergen Institute De Boelelaan 1105
1081 HV Amsterdam

Tilburg University ( email )

Postbus 90153
Tilburg, DC Noord-Brabant 5000 LE

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