T. Tietenberg, “The Tradable Permits Approach to Protecting the Commons: What Have We Learned?” In: E. Ostrom, et al., The Drama of the Commons, National Research Council, Committee on the Human Dimensions of Global Change, National Academy Press, Washington, DC, 2002, pp. 197-232.

has been cited by the following article:

• TITLE: Capital Allocation and International Equilibrium with Pollution Permits

  AUTHORS: Pierre-André Jouvet, Gilles Rotillon

  KEYWORDS: Pollution Permits; Capital Allocation; International Equilibrium

  JOURNAL NAME: Modern Economy, Vol.3 No.2, March 28, 2012

  ABSTRACT: Since the Kyoto Agreement, the idea of setting up pollution rights as an instrument of environmental policy for the reduction of greenhouse gases has progressed significantly. But the crucial problem of allocating these permits in a manner acceptable to all countries is still unsolved. There is a general consensus that this should be done according to some proportional allocation rule, but opinions vary greatly about what would be the appropriate proportionality parameter. In this paper, we analyze the economic consequences of different allocation rules in a general equilibrium framework. We first show the existence and unicity of an international equilibrium under the assumption of perfect mobility of capital and we characterize this equilibrium according to the dotations of permits. Then, we compare the economic consequences of three types of allocation rules when the permit market is designed to reduce total pollution. We show that a rule which applies some form of grandfathering simply reduces production and emissions proportionally and efficiently. In contrast, an allocation rule proportional to population is beneficial for developing countries. Finally per capita allocation rules induce size effect and can reverse these results.