When Should Uncertain Nonpoint Emissions Be Penalized in a Trading Program?

7 Pages Posted: 24 Apr 2020

See all articles by David Hennessy

David Hennessy

Iowa State University

Hongli Feng

Iowa State University - Center for Agriculture and Rural Development (CARD)

Date Written: February 2008

Abstract

When nonpoint source pollution is stochastic and the damage function is convex, intuition might suggest it is more important to control a nonpoint pollution source than a point source. Earlier research has provided sufficient conditions such that the permit price for a unit of ex‐ante expected emissions should be higher than the permit price for a unit of certain emissions. Herein we provide a set of necessary and sufficient conditions such that this is the case. An approach to testing for the validity of the condition set is available, and has been applied to a related problem.

Keywords: agricultural pollution, multiple inputs, permit trading, social optimality, trading ratio, water quality

Suggested Citation

Hennessy, David and Feng, Hongli, When Should Uncertain Nonpoint Emissions Be Penalized in a Trading Program? (February 2008). American Journal of Agricultural Economics, Vol. 90, Issue 1, pp. 249-255, 2008, Available at SSRN: https://ssrn.com/abstract=3583794 or http://dx.doi.org/10.1111/j.1467-8276.2007.01043.x

David Hennessy (Contact Author)

Iowa State University

Hongli Feng

Iowa State University - Center for Agriculture and Rural Development (CARD) ( email )

Ames, IA 50011
United States

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