December 19, 2010

Environmental Economics and Modeling Marketable Permits

by Luca Taschini

- This paper reviews fundamental concepts in environmental economics and explores theoretical results regarding the choice of the key policy instruments for the control of externalities: taxes, subsidies and marketable permits. The paper explains why today market mechanisms are increasingly being used as a tool for allocating unpriced rights and scarce resources. We survey how significant market imperfections, a pre-existing regulatory environment and concentration in both permit and output markets can impede the proper functioning of a permit system.

Taschini, L. (2010). "Environmental Economics and Modeling Marketable Permits." Grantham Research Institute on Climate Change and the Environment Working Paper No. 25, Sept 2010.