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Please use this identifier to cite or link to this item: http://hdl.handle.net/2108/290

Title: The Allocation of tradeable emission permits within federal systems (or economic unions)
Authors: D'Amato, Alessio
Valentini, Edilio
Keywords: emissions trading
environmental dumping
environmental federalism
Issue Date: 24-May-2006
Publisher: CEIS
Series/Report no.: Quaderni CEIS; 235
Abstract: This paper deals with the issue of whether the power of allocating tradeable emission permits within a federal system (or an economic union) should be centralized or delegated to the single states/nations. To this end, we develop a simple two stage game played by two governments and their respective industries producing a homogeneous output that is sold in a third country. We show that when emission permits are traded competitively at a federal (or economic union) level, a decentralized emission trading system (DETS) would result in a lower than optimal price of permits, as well as in an aggregate emission target which is larger than the socially optimal target that would arise under a centralized system (CETS). This result partly hinges on standard international externality considerations; on the other hand, we find a new "channel" through which decentralized permits distribution could lead to distortions: under a DETS, national governments play a Cournot game, and choose the amount o...
URI: http://hdl.handle.net/2108/290
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