American Economic Journal:
Microeconomics
ISSN 1945-7669 (Print) | ISSN 1945-7685 (Online)
Dynamic Incentives and Permit Market Equilibrium in Cap-and-Trade Regulation
American Economic Journal: Microeconomics
vol. 16,
no. 3, August 2024
(pp. 374–423)
Abstract
This paper develops and estimates a dynamic structural model of emissions abatement, investment, and permit trading with banking under cap-and-trade regulation. The model accounts for forward-looking behavior and transaction costs in the permit market, which determine the temporal and geographical distribution of emissions in equilibrium and, thus, the welfare implications of the regulation. The model is applied to the US Acid Rain Program to evaluate the role of regulatory designs. Permit banking mitigates inefficiencies arising from transaction costs and modifies the timing of emissions. An emissions tax policy could achieve an outcome close to dynamic cap and trade without transaction costs.Citation
Toyama, Yuta. 2024. "Dynamic Incentives and Permit Market Equilibrium in Cap-and-Trade Regulation." American Economic Journal: Microeconomics, 16 (3): 374–423. DOI: 10.1257/mic.20190377Additional Materials
JEL Classification
- D23 Organizational Behavior; Transaction Costs; Property Rights
- H23 Taxation and Subsidies: Externalities; Redistributive Effects; Environmental Taxes and Subsidies
- L94 Electric Utilities
- L98 Industry Studies: Utilities and Transportation: Government Policy
- Q52 Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
- Q53 Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
- Q58 Environmental Economics: Government Policy
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