Competitive Markets for Pollution Permits: Impact on Factor Income and International Equilibrium |
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Authors: | Pierre-André Jouvet Philippe Michel Gilles Rotillon |
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Institution: | 1.EconomiX,University of Paris Ouest Nanterre La Défense,Nanterre,France;2.CORE,Louvain-La-Neuve,Belgium |
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Abstract: | We are interested in the impact of pollution permits on wages and profits. We analyze important consequences of introducing
a market of pollution permits. A fundamental issue concerns the initial allocation of such permits: should they be allocated
freely by grandfathering or be auctioned. The international symmetric case allows us to capture the essence of the problem
on income factor. We show that allocating permits to factors in proportion of their contribution to production leads to an
efficient (neoclassical) distribution. Considering the international asymmetric case, we show that a permit market does not
modify the competitive world equilibrium without permits when the total allocation is large enough. When it is not, if allocation
of permits is not proportional to the emissions in the world without permits, there is a reduction factor of emissions that
results from the equilibrium allocation of capital. |
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Keywords: | |
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