Bankable Prices

67 Pages Posted: 12 Nov 2018 Last revised: 14 Jun 2024

Date Written: November 2018

Abstract

Allowing emissions permits to be banked and borrowed over time can yield efficiency gains. I develop a model to demonstrate that banking and borrowing can also be allowed for a price policy. I compare expected welfare between price and quantity policies, with and without banking, under several different scenarios regarding uncertainty. A bankable policy can provide an efficiency improvement by allowing for smoothing of costs, though it does not necessarily dominate a policy that does not allow banking. The ranking of prices vs. quantities and of bankability vs. non-bankability depends on both the slopes of marginal costs and benefits and on the specification of uncertainty.

Suggested Citation

Heutel, Garth, Bankable Prices (November 2018). NBER Working Paper No. w25235, Available at SSRN: https://ssrn.com/abstract=3282899

Garth Heutel (Contact Author)

Georgia State University ( email )

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