Social and Behavioral Sciences Commons^™

Enforcing Transferable Permit Systems In The Presence Of Transaction Costs, Carlos A. Chavez, John K. Stranlund

PERI Working Papers

In this paper we examine the impacts of transaction costs on enforcing a transferable emissions permit system. We derive an enforcement strategy with a self-reporting requirement that achieves complete compliance in a cost-effective manner. In the absence of transaction costs targeted enforcement—the practice of monitoring some firms more closely than others—is neither necessary nor desirable. In the presence of constant marginal transaction costs, buyers of permits should be monitored more closely than sellers, but within groups of buyers and sellers monitoring should be uniform. When marginal transaction costs are not constant, effective monitoring will depend on whether a firm is …