Scandinavian Working Papers in Economics
Memorandum,
Oslo University, Department of Economics
No 09/2006: Distributional constraints and efficiency in a tradable permit market
Cathrine Hagem () and Hege Westskog ()
Additional contact information
Cathrine Hagem: Dept. of Economics, University of Oslo, Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway
Hege Westskog: CICERO, Center for International Climate and Environmental Research, Postal: P.O. Box 1129, Blindern, N-0318 Oslo, Norway.
Abstract: It is a well known result that taking distributional constraints into account when allocating tradable permits to different agents can lead to an imperfectly competitive permit market. Hence, the emission target is no longer met at least cost. In this paper we suggest an allocation rule for permits which can handle this problem. If the permits are allocated twice during the same period, and the allocation in the second round is dependent on the market price for permits, this allocation rule can achieve both cost effectiveness and meet specific requirements for cost distribution across agents.
Keywords: Climate Change; Emission Permits; Allocation; Cost Effectiveness; Distributional Constraints
27 pages, May 8, 2006
Full text files
Memo-09-2006.pdf
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