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http://dx.doi.org/10.15266/KEREA.2016.25.3.421

Welfare Analysis of Carbon Taxes and Tradable Permit Allocations: A Contest Theory Model  

Lee, Jong Hwa (Department of Economics, Korea University)
Publication Information
Environmental and Resource Economics Review / v.25, no.3, 2016 , pp. 421-447 More about this Journal
Abstract
I examine the situation in which the players compete to obtain economic rents which is generated by the market-based environmental regulation, such as carbon taxes or tradable permit allocations. Drawing on contest theory, I employ the sharing rules which is devised to motivate players best effort, and consider two models in carbon taxes: one model with observable sharing rules and the other model with unobservable sharing rules. I show that, first, the overall welfare of carbon taxes is always less than that of tradable permit allocations under the model with observable sharing rules. Second, depending on the share of the preassigned allocation in tradable permit allocations, the overall welfare of carbon taxes may be larger than that of tradable permit allocations under the model with unobservable sharing rules.
Keywords
Contest; Rent-seeking; Cap-and-trade; Carbon taxes; Welfare analysis;
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