On the Sequential Choice of Tradable Permit Allocations

CER-ETH - Center of Economic Research at ETH Zurich, Working Paper No. 08/83

31 Pages Posted: 6 Mar 2008

See all articles by Ian A. MacKenzie

Ian A. MacKenzie

University of Queensland - School of Economics

Date Written: March 2008

Abstract

This paper investigates the sequential announcement of domestic emissions caps by regulators in a federal or international-based tradable pollution permit market for a transboundary pollutant. A leader-follower framework is used to analyse the consequences of regulators sequentially announcing domestic allocation caps. We find the sequential choice of domestic allocation caps is sub-optimal and depends on the follower's reaction to the leader's choice. Furthermore, the marginal damage and the degree to which allocations are substitutes or complements affects whether the leader changes from being a net permit buyer (seller) of permits to a seller (buyer).

Keywords: Initial allocation, international tradable permit market, leader-follower

JEL Classification: D78, L13, Q28

Suggested Citation

MacKenzie, Ian A., On the Sequential Choice of Tradable Permit Allocations (March 2008). CER-ETH - Center of Economic Research at ETH Zurich, Working Paper No. 08/83, Available at SSRN: https://ssrn.com/abstract=1102242 or http://dx.doi.org/10.2139/ssrn.1102242

Ian A. MacKenzie (Contact Author)

University of Queensland - School of Economics ( email )

Brisbane, QLD 4072
Australia