Alternative intertemporal permit trading regimes with stochastic abatement costs

Date
2006-01-01
Authors
Feng, Hongli
Zhao, Jinhua
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Research Projects
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Economics
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Abstract

We examine the social efficiency of alternative intertemporal permit trading regimes. The role of uncertainty and information asymmetry is discussed. For banking to be welfare improving, uncertainty itself does not matter, while information asymmetry does. Three effects of banking are identified: externality effect, information effect, and total permit effect. In the absence of total permit effect, banking is welfare improving if information effect is positive and dominates the externality effect. The relative efficiency of banking regimes with different intertemporal trading ratios is affected by the slope of the benefit and damage functions and the covariance of the shocks.

Description

This is a working paper of an article published as Feng, Hongli, and Jinhua Zhao. "Alternative intertemporal permit trading regimes with stochastic abatement costs." Resource and Energy Economics 28, no. 1 (2006): 24-40. doi:10.1016/j.reseneeco.2005.04.002. Posted with permission.

Keywords
Bankable permits, Externality effect, Information effect, Intertemporal trading ratio, Total permit effect
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