We consider, in this paper, the allocation of pollution quotas as a mechanism design problem. The first objective of pollution quotas is to reduce pollution, but raising revenue is an additional goal when taxation is distortionary. As there is a conflict between allocative efficiency and...

This paper discusses market power effects in ambient permit markets. A first conclusion is that the distortion observed at the manipulated market spreads to other markets. We find that the manipulated price could be lower (higher) than his competitive level according to the dominant firm acts as...

Incentive contracts can be proposed to a dominant firm that has been excluded from the pollution permit market. We determine the optimal characteristics of a contract considering the trade-off between market efficiency and the cost of public funds. We show that under incomplete information the...

<alinea/> In this article, the different methods that can be used to distribute pollution quotas are analysed. First, we present the free of charge allocations. Then, we give several kinds of allocation which raise revenue for the government. Finally, we compare these different allocations within a...

Permit markets lead polluting firms to purchase abatement goods from an eco-industry, which is often concentrated. This paper studies the consequences of imperfect competition in an eco-industry on the equilibrium choices of the competitive polluting firms. It then characterizes the second best...

In this article we introduce a polluting eco-industry. Depending on the level of the damage, we find one of two optimal equilibria. If the damage is low, we generalize the usual results of the economic literature to the polluting eco-industry: the dirty firm partially abates their emissions,...