Download the Paper (PDF format) - February 5, 2010 Tell a colleague about it. Printing Tips: Select 'print as image' in the Acrobat print dialog if you have trouble printing.

ABSTRACT:

In this paper we examine an alternative policy scenario, where governments allow polluting firms to trade permits in a strategic environmental policy model. We demonstrate, among other things, that with no market power in the permits market, governments of the exporting firms do not have an incentive to under-regulate pollution in order to become more competitive. This strategic effect is reversed and leads to a welfare level closer to the cooperative one and strictly higher to that when permits are non-tradable. Allowing for market power in the permits market, the incentive to under-regulate pollution re-appears regardless of whether permits are tradable or not. With tradable permits, however, the incentive to under-regulate pollution is comparatively weaker relative to the case of non-tradable permits. This entails potential benefits for the exporting firms and countries since the prisoners’ dilemma is moderated.

SUGGESTED CITATION:
Panos Hatzipanayotou, Fabio Antoniou, and Phoebe Koundouri, "Tradable Permits vs Ecological Dumping" (February 5, 2010). Fondazione Eni Enrico Mattei Working Papers. Working Paper 392.
http://www.bepress.com/feem/paper392