Pollution Permit Systems and Firm Dynamics: How Does the Allocation Scheme Matter?

24 Pages Posted: 12 Feb 2016

See all articles by Evangelina A. Dardati

Evangelina A. Dardati

Universidad Alberto Hurtado - Departamento de Economia y Administracion

Date Written: February 2016

Abstract

I use a firm dynamics model to compare two permit allocation schemes commonly used in pollution permit systems. In the first, closing plants keep their permits, and new entrants do not get them, whereas in the second, closing plants lose their permits, and new entrants get free allowances. Calibrating the model with data from power plants participating in the U.S. program, I find that, compared to the first scheme, in the second arrangement, (i) plants stay, on average, 3.6 years longer and (ii) although the aggregate emission rate is lower, the plant distribution displays more dirty and low‚Äźproductivity plants.

Suggested Citation

Dardati, Evangelina A., Pollution Permit Systems and Firm Dynamics: How Does the Allocation Scheme Matter? (February 2016). International Economic Review, Vol. 57, Issue 1, pp. 305-328, 2016, Available at SSRN: https://ssrn.com/abstract=2731431 or http://dx.doi.org/10.1111/iere.12157

Evangelina A. Dardati (Contact Author)

Universidad Alberto Hurtado - Departamento de Economia y Administracion ( email )

Erasmo Escala 1835
Santiago, 6500620
Chile

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