This paper analyzes how the way emission permits are traded-their market microstructure-affects the optimal policy to be adopted by the environmental agency. The microstructure used is one of a quote driven market type, which characterizes many financial markets. Market makers act as...

When modeling the effects of innovation on the marginal abatement cost (MAC) curve, many studies in environmental economics have posited, implicitly or explicitly, a uniform downward shift. The purpose of this paper is to thoroughly investigate this claim in a simple theoretical framework by...