We consider a pollution permit market with a large firm and fringe of competitive firms. To smooth compliance towards a long-run emissions goal, firms are initially allocated a stock (i.e., bank) of permits that can be gradually consumed. We first show how the large firm can credibly manipulate...

I study a regulatory process in which both the regulator and the regulated firm propose prices that, in case of disagreement, are settled through final-offer arbitration (FOA)—a practice currently used in Chile for setting prices in the water sector. Rather than submitting a single offer, each...