Take Action

Home | Faculty & Research Overview | Research

Research Details

Trading for the Future: Signaling in Permit Markets, Journal of Public Economics

Abstract

Tradable permits are celebrated as a political instrument since they allow (i) firms to equalize marginal costs through trade and (ii) the government to distribute the burden in a politically fair and feasible way. These two concerns, however, may conflict in a dynamic setting. Anticipating the government's temptation to give more permits to high-cost firms in the future, the firms purchase permits excessively today to signal high costs. This raises the price above marginal costs and distorts abatements. If the government redistributes permits frequently and the (shadow) price for permits is large, the distortions can be greater than the gains from trade, implying that non-tradable quotas may be better.

Type

Article

Author(s)

Bard Harstad, Gunnar Eskeland

Date Published

2010

Citations

Harstad, Bard, and Gunnar Eskeland. 2010. Trading for the Future: Signaling in Permit Markets. Journal of Public Economics. 94(9-10): 749-760.

LINK
KELLOGG INSIGHT

Explore leading research and ideas

Find articles, podcast episodes, and videos that spark ideas in lifelong learners, and inspire those looking to advance in their careers.
learn more

COURSE CATALOG

Review Courses & Schedules

Access information about specific courses and their schedules by viewing the interactive course scheduler tool.
LEARN MORE

DEGREE PROGRAMS

Discover the path to your goals

Whether you choose our Full-Time, Part-Time or Executive MBA program, you’ll enjoy the same unparalleled education, exceptional faculty and distinctive culture.
learn more

Take Action