Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/181352 
Year of Publication: 
2018
Series/Report no.: 
CESifo Working Paper No. 7152
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
High transaction costs and thin participation plague water quality trading and prevent markets from delivering expected efficiency gains. Point sources generate a single pollutant, while nonpoint sources generate multiple, complementary pollutants. We develop a dynamic search model of point-nonpoint trading that includes transactions costs. These costs affect participation decisions and generate strategic complementarities with multiple large or small market participation levels equilibria. Integrated markets—with trading across pollutants—lead to lower transactions costs for both sources and a larger basin of attraction around the full-participation equilibrium, and thus may improve pollution trading efficiency relative to distinct markets.
Subjects: 
credit stacking
multi-pollutant trading
participation
strategic complementarities
transactions costs
JEL: 
D47
Q53
Q58
Document Type: 
Working Paper
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