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Title: Using the allocation of emission permits for strategic trade purposes
Authors: Constantatos, Christos
Filippiadis, Eleftherios
Sartzetakis, Eftichios S.
Type: Article
Subjects: FRASCATI::Social sciences::Economics and Business::Economics
Keywords: Tradable emissions permits
Strategic trade policy
Issue Date: 2014
Source: Journal of Regulatory Economics
Volume: 45
Issue: 3
First Page: 259
Last Page: 280
Abstract: We show that the presence of transaction costs in emission permit markets challenges the common presumption that grandfathering permits corresponds to lump-sum transfers with no strategic effects on output. Fixed transaction-costs influence firms’ decision to participate in the permits market, while variable transaction-costs affect firms’ output choice by creating a wedge between buyers’ and sellers’ opportunity cost of using permits. Thus, permit grandfathering can be used as a strategic trade instrument even when firms are price takers in the permit markets. Grandfathered permits differ from subsidies in that the stimulus they provide is bounded exogenously and rather limited.
ISSN: 0922-680X
Other Identifiers: 10.1007/s11149-014-9244-0
Appears in Collections:Department of Economics

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