2002 World Congress of Environmental and Resource Economists

When there are a large number of firms, permit trading within one period tends to absorb firm-specific shocks in that period. In the presence of industry-wide shocks, however, allowing trade across time can attain a higher welfare level than a no-banking system. Bankable permit regimes with a 1-to-1 or non-unitary intertemporal trading ratios (ITRs) are examined. When banking is welfare improving, the optimal ITR is always less than 1+r, the ITR for monetary values. The more industry-wide shocks vary, and/or the more they are negatively correlated across time, the more efficient a bankable permit regime. Bankable permits with ITR=1 or ITR=1+r can both do better than a no banking regime. However, which one is better depends on the covariance structure of the shocks and the benefit and damage functions.



	Paper Title:	Alternative Intertemporal Permit Trading Regimes With Stochastic Abatement Costs
	Presenting Author:	Hongli Feng (Iowa State University, (CARD))
	Coauthor 1:
	Coauthor 2:
	Coauthor 3:
	Abstract:	When there are a large number of firms, permit trading within one period tends to absorb firm-specific shocks in that period. In the presence of industry-wide shocks, however, allowing trade across time can attain a higher welfare level than a no-banking system. Bankable permit regimes with a 1-to-1 or non-unitary intertemporal trading ratios (ITRs) are examined. When banking is welfare improving, the optimal ITR is always less than 1+r, the ITR for monetary values. The more industry-wide shocks vary, and/or the more they are negatively correlated across time, the more efficient a bankable permit regime. Bankable permits with ITR=1 or ITR=1+r can both do better than a no banking regime. However, which one is better depends on the covariance structure of the shocks and the benefit and damage functions.
	Link to paper:	http://weber.ucsd.edu/~carsonvs/papers/553.pdf

	Session / Day / Time	1F / Monday / 8:00 - 10:00 am

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