The Effect of Allowance Allocations on Cap-and-Trade System Performance
By Robert W. Hahn, R. Stavins. Journal law and economy, 2010
219 citations recorded by the source corpus.
An implication of the Coase theorem is that under certain conditions, the market equilibrium in a cap-and-trade system will be cost-effective and independent of the initial allocation of tradable rights. That is, the overall cost of achieving a given aggregate emission reduction will be minimized, and the final allocation of permits will be independent of the initial allocation. We call this the independence property. This property is important because it means that the government can establish the overall pollution reduction goal for a cap-and-trade system by setting the cap and leaving it up to the legislature to construct a constituency in support of the program by allocating the allowances to various interests without affecting either the environmental performance of the system or its aggregate social costs. We examine the conditions under which the independence property is likely to hold—both in theory and in practice.
Subfields: Economics and Econometrics
View Paper: https://www.semanticscholar.org/paper/47099c6afb51973a4368a40acb9e86b8d4d152c5
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In Economics and Econometrics
Citations in the corpus
- On the empirical content of carbon leakage criteria in the EU emissions trading scheme (2014, background): “As Hahn and Stavins (2011) note, this ‘independence property’ of emissions trading follows from the Coase theorem under certain conditions (a competitive permit market, rational behavior, and lack of transaction costs, regulatory uncertainty or credit constraints).”
- Lessons Learned from Three Decades of Experience with Cap-and-Trade (2015, unknown): “…trading has occurred, is independent of the initial allocation (Montgomery 1972) — barring particularly problematic types of transaction costs (Hahn and Stavins 2012) --- the initial allocation of allowances could be designed to maximize political support without compromising the system’s…”
- Market-Based Emissions Regulation and Industry Dynamics (2016, unknown): “…production and abatement decisions will be unaffected by the choice of either auctioning permits or allocating them freely to firms in a lump sum ðHahn and Stavins 2011Þ. Dynamically, however, both mechanisms generally generate different long-run outcomes, primarily because of the exit…”