Transaction costs and sequential bargaining in transferable discharge permit markets

Netusil, Noelwah R.; Braden, John B.

doi:10.1006/jema.2000.0407

Cited by 18 publications

(12 citation statements)

References 22 publications

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“…The cost of verification and monitoring of permit schemes may be significant. The impact of transaction costs on permit schemes has been examined by Cason & Gangadharan (2003) and Netusil & Braden (2001). Cason & Gangadharan (2003) show the influence that initial allocations can have on cost efficiency in the presence of transaction costs, finding that in the case of a market with constant marginal transaction costs the importance of allocating the permits accurately is important.…”

Section: Damage Costs Of Nitrogen Fertilizer In Europe 417mentioning

confidence: 98%

“…Although small, region specific markets may affect the extent to which transaction costs would decline. Netusil & Braden (2001) simulate the impacts of transaction costs and trading regimes on a hypothetical tradable permit scheme to address sediments from agriculture, finding that combining transaction costs with bilateral and sequential trading results in less cost saving than under the optimal solution. However, even with the highest level of transaction costs modeled the abatement costs are lower than under the regulations in force.…”

Section: Damage Costs Of Nitrogen Fertilizer In Europe 417mentioning

confidence: 99%

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Damage costs of nitrogen fertilizer in Europe and their internalization

Blottnitz

Rabl

Boiadjiev

et al. 2006

Journal of Environmental Planning and Management

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This paper estimates the environmental impacts and damage costs ('external costs') of synthetic nitrogen fertilizer and discusses options for reducing these impacts, including their consequences for farmers and for producers of fertilizer. The damage costs of the fertilizer life cycle that could be estimated are large, about 0.3 €/kgN (compared to the current market price of about 0.5 €/kgN); much of that is due to global warming by N2O and CO2 emissions during fertilizer production and N2O emissions from fertilized fields. Policy options for internalizing these costs are discussed, and the consequences of reduced fertilizer input on crop yield are explored. If the damage costs were internalized by a pollution tax or tradable permits that are auctioned by the government, the economic consequences would be heavy, with a large revenue loss for farmers. However, if it is internalized by tradable permits that are given out free, the revenue loss for farmers is small. The loss for fertilizer producers increases linearly with the amount of external cost that is internalized, by contrast to the loss for farmers which increases quadratically but is very small for a damage cost of 0.3 €/kgN. Expressed as a change in the fertilizer-dependent part of the farmers' revenue (crop yield × crop price - fertilizer used× fertilizer price), the decrease is less than 0.5% for most crops; the losses are larger only for crops with low €/ha revenue. Averaged over wheat, barley, potatoes, sugar beet and rapeseed, the loss to farmers is about 0.1% in the UK and 0.4% in Sweden. The revenue loss for fertilizer producers is larger, about 8% in the UK and 14% in Sweden.

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Section: Damage Costs Of Nitrogen Fertilizer In Europe 417mentioning

confidence: 98%

Section: Damage Costs Of Nitrogen Fertilizer In Europe 417mentioning

confidence: 99%

Damage costs of nitrogen fertilizer in Europe and their internalization

Blottnitz

Rabl

Boiadjiev

et al. 2006

Journal of Environmental Planning and Management

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“…Therefore, revealing a reservation price also indicates an estimation of marginal abatement costs for that source. In a market where bilateral, sequential transactions are expected to take place (Hahn, 1986;Atkinson & Tietenberg, 1991;Burtraw et al, 1998;Netusil & Braden, 2001;Carey et al, 2002;Woodward et al, 2002), all price information holds value not only for the actors involved in the transaction but for all other actors as well. Public price information lowers both types of information costs described above for other market actors; information about abatement cost functions and price expectations (Stavins, 1995a).…”

Section: Collentinementioning

confidence: 99%

Composite market design for a Transferable Discharge Permit (TDP) system

Collentine

2006

Journal of Environmental Planning and Management

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There has been a great deal of interest in addressing water quality issues through the use of Transferable Discharge Permit (TDP) systems. Unfortunately, the attempts to start up permit markets that are able to exploit abatement cost differences between sources have not met with the success expected. Two of the reasons for the lack of success have been the problem of transaction costs and in the case of non-point sources (NPS), undefined property rights. The composite market design is a proposal for a TDP system that specifically includes agricultural non-point source (NPS) discharges and addresses both property rights and transaction cost problems. The composite market consists of three interrelated markets each serving a particular function. The two primary markets are coordinated through price information that makes it possible for a catchment-based authority to issue (sell) permits based on the marginal cost of abatement. When the composite market is mature, the total number of permits issued corresponds to a cap on discharges allowed in the catchment. The structure of the composite market allows this system to be phased in over time with existing institutions and limited demands on financing.

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“…The bilateral and sequential approach has been adopted in many existing empirical studies on emission permit trading of SO2, particulate, etc. (11,16,17). Furthermore, Rodriguez (18) has used a one-buyer multi-seller sequential simulation to analyze the possibility of introducing a TDP system to develop joint implementation of SO2 reduction under the Second Sulfur Protocol, with the consideration that multilateral trades are closer than bilateral ones to the concept of joint implementation and that multilateral trades may increase the possibility of identifying feasible transfers.…”

Section: Simulation Of the Inter-zonal Tdp Marketmentioning

confidence: 99%

“…Netusil and Braden, however, explored that ordering sequential and bilateral contracts according to gains from trade is superior to contracting randomly (17,20).…”

Section: Simulation Of the Inter-zonal Tdp Marketmentioning

confidence: 99%

Inter-zonal Tradable Discharge Permit System to Control Water Pollution in Tianjin, China

Cao

Ikeda

2005

Environ. Sci. Technol.

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In recent years, Chinese environmental authorities have expressed interest in the use of Tradable Discharge Permits (TDP) as a regulatory instrument to control pollutant emissions. Environmental professionals still have not had enough experience, however, in designing and managing TDP systems, especially for non-uniformly dispersed pollutants. As an empirical study, this paper proposes an interzonal TDP system and analyzes its effectiveness in cost savings and environmental protection for reducing water pollutant COD (chemical oxygen demand) in Tianjin, China. Zonal permit system (ZPS) and emission permit system (EPS) are discussed for comparison. The inter-zonal TDP system is demonstrated to improve cost efficiency by allowing permit trades between zones, as long as water quality constraints are satisfied. The transactions are assumed to proceed in a multilateral sequential way and are simulated with a circularly running linear programming (LP) model. The simulation of permit transactions among 20 firms shows that to reach the same COD removal target, ZPS, interzonal TDP system, and EPS lowered the total reduction cost by 12.8%, 14.6%, and 15.8%, respectively. EPS, however, brought about "hot spots" problem. Finally, the transaction costs and the sensitivity of the three TDP systems to changes in both COD reduction rate and the initial permit allocation are discussed, and policy implications are addressed. IntroductionA transferable discharge permit (TDP) system is one of the economic instruments for pollution control. It has been successfully used in the reduction of SO2 (sulfur dioxide) in the United States and is being tried worldwide in efforts to abate other pollutants (CO2, BOD (biochemical oxygen demand), etc.) by virtue of its cost efficiency and flexibility in attaining control targets (1, 2).In China, the TDP system is attracting more and more attention. Environmental management measures of "total emission control", "declaration and registration of pollutant discharges", and "pollutant discharge permits" provide support for implementation of the TDP system from the perspective of both policy and relative information and data (3). Although the regulatory/administrative framework to institute a TDP system is yet to be developed in China, several cases of permit transfers have occurred in Shanghai, Beijing, and Zhejiang that have involved water pollutants such as COD (chemical oxygen demand), suspended solids, copper, nickel, and zinc (4, 5). In 2002, the State Environmental Protection Administration (EPA) of China started a pilot project of SO2 emission trading in some provinces and cities. Some pilot provinces or cities, such as the province of Jiangsu or the city of Taiyuan, have formulated a provisional method for managing SO2 emission trading (5).The TDP scheme is still in its beginning stages in China. The successful experiences of foreign countries help formulate general guidelines for permit trading; whereas, empirical studies in specific regions for specific pollutants in China could provide mor...

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Transaction costs and sequential bargaining in transferable discharge permit markets

Cited by 18 publications

References 22 publications

Damage costs of nitrogen fertilizer in Europe and their internalization

Damage costs of nitrogen fertilizer in Europe and their internalization

Composite market design for a Transferable Discharge Permit (TDP) system

Inter-zonal Tradable Discharge Permit System to Control Water Pollution in Tianjin, China

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