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|Title:||Using the allocation of emission permits for strategic trade purposes|
Sartzetakis, Eftichios S.
|Keywords:||Tradable emissions permits|
Strategic trade policy
|Source:||Journal of Regulatory Economics|
|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.|
|Appears in Collections:||Department of Economics |
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