Massachusetts Institute of Technology. Center for Energy and Environmental Policy Research.
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I study the optimal design of marketable permit systems to regulate various pollutants (e.g. air pollution in urban areas) when the regulator lives in a real world of imperfect information and incomplete enforcement. I show that the regulator should have pollution markets integrated through optimal exchange rates when the marginal abatement cost curves in the different markets are steeper than the marginal benefit curves; otherwise he should keep markets separated. I also find that incomplete enforcement reduces the advantage of market integration.
MIT Center for Energy and Environmental Policy Research
MIT-CEEPR (Series) ; 01-008WP.