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American Economic Review: Vol. 102 No. 1 (February 2012)

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Efficient Pollution Regulation: Getting the Prices Right: Comment

Article Citation

Fraas, Art, and Randall Lutter. 2012. "Efficient Pollution Regulation: Getting the Prices Right: Comment." American Economic Review, 102(1): 602-07.

DOI: 10.1257/aer.102.1.602

Abstract

The cost-effectiveness of cap-and-trade emissions regulations has become widely accepted. A 2009 proposal by Muller and Mendelsohn would replace conventional ton-for-ton trading with trading based on estimates of marginal damages by pollutant and by source. This proposal faces difficulties arising from the negative marginal damage estimates—neglected in Muller and Mendelsohn (2009)—for nitrogen oxide (NOx) emissions from many urban counties. Such estimates imply nonconvexities in air chemistry that complicate trading and could result in trades that increase emissions by both buyer and seller. Uncertainty in source-specific damages also creates rent-seeking opportunities and the potential for costly litigation. (JEL H53, Q53, Q58)

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Authors

Fraas, Art (Resources for the Future, Washington, DC)
Lutter, Randall (Resources for the Future, Washington, DC)

JEL Classifications

H53: National Government Expenditures and Welfare Programs
Q53: Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
Q58: Environmental Economics: Government Policy


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