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2006

Iowa State University

CARD Working Papers

Delivery coefficient

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Optimal Design Of Permit Markets With An Ex Ante Pollution Target, Sergey S. Rabotyagov, Hongli Feng, Catherine L. Kling Aug 2006

Optimal Design Of Permit Markets With An Ex Ante Pollution Target, Sergey S. Rabotyagov, Hongli Feng, Catherine L. Kling

CARD Working Papers

In this paper, we examine the design of permit trading programs when the objective is to minimize the cost of achieving an ex ante pollution target, that is, one that is defined in expectation rather than an ex post deterministic value. We consider two potential sources of uncertainty, the presence of either of which can make our model appropriate: incomplete information on abatement costs and uncertain delivery coefficients. In such a setting, we find three distinct features that depart from the well-established results on permit trading: (1) the regulator’s information on firms’ abatement costs can matter; (2) the optimal ...