Enforcing Transferable Permit Systems in the Presence of Market Power

摘要

We derive an enforcement strategy for a transferable permit system in the presence of market power that achieves complete compliance in a cost-effective manner. We show that the presence of a firm with market influence makes designing an enforcement strategy more difficult than enforcing a perfectly competitive system. We also re-consider Hahn's (1984) suggestion that a firm with market influence should be allocated permits so that it chooses to not participate in the permit market. When enforcement and its costs are taken into account, Hahn's suggestion does not hold except in a very special case.