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Design of Tradable Permit Programs under Imprecise Measurement

Ledyard, John O. (2018) Design of Tradable Permit Programs under Imprecise Measurement. Social Science Working Paper, 1438. California Institute of Technology , Pasadena, CA. (Unpublished)

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If the measurement of production in a commons is accurate and precise, it is possible to design a tradable permit program such that, under a fairly general set of conditions, the market equilibrium is efficient for the given aggregate permit level and everyone is better off after the permit program than before. Often, however, implementation of a tradable permit system is postponed or never undertaken because an inexpensive technology able to provide accurate and precise measurements does not exist. However, there often is an inexpensive technology which accurate but not precise. I study the possibilities for the design of a tradable permit system when the measurement technology involves an imprecise, indirect measure of production that contains statistical uncertainty. To the best of my knowledge, this has not been studied before. As one might expect, imprecise measurement can lead to inefficiency and prevent voluntary participation. But there are positive results. If measurement errors are proportional to use, it is possible to design so that aggregate output is efficiently allocated. Also, it is possible to calculate a set of individual firm lump-sum subsidies to attain voluntary participation.

Item Type:Report or Paper (Working Paper)
Additional Information:I thank the Max Factor Family Foundation in partnership with the Jewish Community Foundation of Los Angeles for its financial support of this project.
Group:Social Science Working Papers
Funding AgencyGrant Number
Max Factor Family FoundationUNSPECIFIED
Jewish Community Foundation of Los AngelesUNSPECIFIED
Subject Keywords:quota, permits, rights, tradable, imprecise measurement, voluntary participation, imperfect enforcement
Series Name:Social Science Working Paper
Issue or Number:1438
Record Number:CaltechAUTHORS:20191018-120435407
Persistent URL:
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:99370
Deposited By: Katherine Johnson
Deposited On:18 Oct 2019 19:07
Last Modified:22 Oct 2019 00:30

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