Strategic underproduction and ownership limit policy in cap-and-trade

dc.contributor.author Guo, Xinyu
dc.contributor.author Désiré Kédagni
dc.contributor.author Weninger, Quinn
dc.contributor.department Economics
dc.date.accessioned 2021-12-21T21:29:53Z
dc.date.available 2021-12-21T21:29:53Z
dc.date.issued 2024-3-15
dc.description.abstract Cap-and-trade regulations enable tacit coordination and strategic underproduction of a regulators targeted cap. Strategic underproduction increases industry profits but lowers consumer surplus and creates cost inefficiency. These outcomes are prevented by limiting the quantity of production/emissions permits owned by individual firms. Ownership limits that are too stringent or too lax however can reduce welfare below levels that obtain without ownership limits. We demonstrate these results for the U.S. west coast groundfish fishery. Fishing permit ownership limits currently range between 2%-5% of total available permits. Welfare maximizing limits range between 10% - 50%. We predict a 25% reduction in welfare, due to foregone consumer surplus, under limits that are too lax. Results find that overly stringent ownership limits create scale inefficiency in groundfish production. Our results provide new directions for preventing market power inefficiency under cap-and-trade regulations.
dc.description.comments JEL Classification: L13, Q2. Length: 69 pages. Original Release Date: December 21, 2021; Revision: March 15, 2024.
dc.identifier.uri https://dr.lib.iastate.edu/handle/20.500.12876/avVOD5Rr
dc.language.iso en
dc.publisher © Author(s) 2021
dc.relation.ispartofseries 21015
dc.subject.disciplines DegreeDisciplines::Social and Behavioral Sciences::Economics::Econometrics
dc.subject.disciplines DegreeDisciplines::Life Sciences::Animal Sciences::Aquaculture and Fisheries
dc.subject.keywords Quantity-based regulation
dc.subject.keywords market power
dc.subject.keywords strategic underproduction
dc.subject.keywords ownership limits
dc.title Strategic underproduction and ownership limit policy in cap-and-trade
dc.type Working Paper
dspace.entity.type Publication
relation.isAuthorOfPublication 5050ea73-0a19-40cb-adae-14f05685e54e
relation.isAuthorOfPublication 6bd288df-bd5f-4b47-8b32-22afa9ba05af
relation.isAuthorOfPublication 5050ea73-0a19-40cb-adae-14f05685e54e
relation.isOrgUnitOfPublication 4c5aa914-a84a-4951-ab5f-3f60f4b65b3d
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