Designing Organizations for Trading Pollution Rights

Creators: Ledyard, John O.; Szakaly, Kristin E.

Abstract

Regulators and academicians have recently become interested in using a marketable permits program as a new way to control aggregate pollution emissions. Our research focuses on choosing a permit trading mechanism that is both economically efficient and politically viable. We consider an organized trading process and a revenue neutral auction, both of which involve an initial allocation of permits based on past history. Each is tested in a competitive and in a non-competitive environment to determine which mechanism performs best. The results of our research suggest that, overall, the organized trading process outperforms the revenue neutral auction.

Additional Information

Revised version. Original Published in February 1993. We would like to thank the Flight Project Office of the Jet Propulsion Lab (NASA) for financial support through their grant to the Program on Organization Design at Caltech. This is one of a number of studies on the transition from non-market allocation to market-like allocation mechanisms. We would also like to thank Jamie Kruse, Linda Cohen, and two anonymous referees for their comments. Published as Ledyard, John O., and Kristin Szakaly-Moore. "Designing organizations for trading pollution rights." Journal of Economic Behavior & Organization 25, no. 2 (1994): 167-196.

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