Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/171555
Authors: 
Hanley, Nick
MacKenzie, Ian A.
Year of Publication: 
2009
Series/Report no.: 
Economics Working Paper Series 09/112
Abstract: 
The establishment of a tradable permit market requires the regulator to select a level of aggregate emissions and then distribute the associated permits (rent) to specific groups. In most circumstances, these decisions are often politically contentious and frequently influenced by rent seeking behaviour. In this paper, we use a contest model to analyse the effects of rent seeking effort when permits are freely distributed (grandfathered). Rent seeking behaviour can influence both the share of permits which an individual firm receives and also the total supply of permits. This latter impact depends on the responsiveness of the regulator to aggregate rent seeking effort. Using a three-stage game, we show that rent seeking can influence both the distribution of rents and the ex post value of these rents, whilst welfare usually decreases in the responsiveness of the regulator.
Subjects: 
tradable permit market
rent seeking
initial allocation
JEL: 
D72
D78
Q53
Persistent Identifier of the first edition: 
Document Type: 
Working Paper
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