The efficiency, equity and politics of emissions permit trading


Wooders, M. and Zissimos, B., 2002. The efficiency, equity and politics of emissions permit trading. In: Marsiliani, L., Rauscher, M. and Withagen, C., eds. Environmental Economics and the International Economy.Vol. 25. Dordrecht: Kluwer Academic Publishers, pp. 203-220.

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This paper illustrates that an international permit trading system may hurt relatively poor countries by making associated economic activities unaffordable. A model is constructed in which the free market solution is Pareto inefficient as a result of pollution. The introduction of tradable permits allows pollution to be internalised, and brings about an increase in the total social surplus. But when incomes vary, this may not lead to a Pareto improvement; those in poor countries stop the polluting activity because they cannot afford to do otherwise. Only those in relatively rich countries are made better off. This may explain why poor countries are reluctant to ratify the Kyoto Protocol, itself advocating a permit-trading scheme. The politico-economic implications of permit trading are also examined. We show that the democratic requirements for ratification impose a lower bound on pollution reduction that can be achieved through a system of pollution permits with trade.


Item Type Book Sections
CreatorsWooders, M.and Zissimos, B.
EditorsMarsiliani, L., Rauscher, M. and Withagen, C.
DepartmentsFaculty of Humanities & Social Sciences > Economics
ID Code26236
Additional InformationSee also: Warwick Economics Research Paper no. 586. Available:


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