The empirical properties of two classes of designs for transferable discharge permit markets

Previous work by Atkinson and Lewis (J. Environ. Econ. Manag.1, 237–250 (1974)) and Anderson et al. (“An Analysis of Alternative Policies for Attaining and Maintaining a Short-Term NO₂ Standard,” MATHTECH, Inc., Princeton, N.J., 1979) has indicated the tremendous cost advantages to be achieved by moving from a policy based on emission standards to one based on marketable emission permits. As Tietenberg (Land Econ.56, 391–416 (1980)) points out, however, neither of the major permit designs treated in the literature are optimal from all points of view. This has triggered a search for alternative permit designs, which, while they may not minimize compliance costs, have sufficient other virtues as to make them attractive on other grounds. The purpose of this paper is to examine, within the context of an empirical mathematical programming model, the air quality, emission, and cost consequences of two classes of the permit designs which can be implemented in the absence of information on control costs. This case study involves particulate control in St. Louis.