Dynamic environmental policy with strategic firms: prices versus quantities

SMART-SREC: A stochastic model of the New Jersey solar renewable energy certificate market

“…There is a natural tradeoff between price and quantity certainty, since by fixing one of them, the other becomes uncertain and uncontrollable, subject to fluctuations in supply or demand. There is much literature debating the merits of these two alternatives (see for example Weitzman (1974), Stavins (1996), Moledina et al (2003), Hepburn (2006)), and we do not aim to enter this debate here. Instead, we construct a model to investigate the middle ground by analyzing some ways in which quantity-based trading schemes can lead to more stable prices, without giving up the trading scheme all together.…”

Trading for the Future: Signaling in Permit Markets

“…The firms may then be able to collude and trade in a way that induces the government to issue a larger total number of permits in the next period (Andersson, 1997). Moledina et al (2003) observe that the firms have incentives to raise the permit price to get more permits in the future, but they assume there are only two firms, no firm-specific uncertainty, and the government does not realize that firms are strategic.…”

Trading for the future: Signaling in permit markets

“…The firms may also be able to collude and trade in a way which induces the government to issue a larger total number of permits in the future (Andersson, 1997). Moledina et al (2003) observe that the firms may have incentives to raise the permit price to get more permits in the future, but they assume that there are few (two) firms, there is only aggregate uncertainty, and the government does not realize that firms are strategic. Our model, however, assumes a large number of firms and types that are firm-specific.…”