Testing the Efficiency of a Tradeable Permits Market

33 Pages Posted: 4 Feb 2003

See all articles by Juan-Pablo Montero

Juan-Pablo Montero

Massachusetts Institute of Technology (MIT) - Center for Energy and Environmental Policy Research (CEEPR); Pontifical Catholic University of Chile - Institute of Economics

Date Written: September 6, 2002

Abstract

A tradeable permits market is said to be efficient when all affected firms trade permits until their marginal costs equal the market price. Detailed firm-level data are generally required to perform such an efficiency test, yet such information is rarely available. If firms face a declining target, however, and are allowed to bank permits, as has occurred recently, aggregated data such as the evolution of the permits bank is sufficient to test for either less than optimal market participation or the exercise of market power. An application to the U.S. sulfur dioxide emission permits market is provided.

Suggested Citation

Montero, Juan-Pablo, Testing the Efficiency of a Tradeable Permits Market (September 6, 2002). Available at SSRN: https://ssrn.com/abstract=361701 or http://dx.doi.org/10.2139/ssrn.361701

Juan-Pablo Montero (Contact Author)

Massachusetts Institute of Technology (MIT) - Center for Energy and Environmental Policy Research (CEEPR) ( email )

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Pontifical Catholic University of Chile - Institute of Economics ( email )

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Chile
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HOME PAGE: http://www.mit.edu/people/jpmonter

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