Strategic Behavior and the Environment > Vol 3 > Issue 3

Incentives for Strategic Behavior in the Permit Market

Cathrine Hagem, Research Department, Statistics Norway, Norway, cah@ssb.no
 
Suggested Citation
Cathrine Hagem (2013), "Incentives for Strategic Behavior in the Permit Market", Strategic Behavior and the Environment: Vol. 3: No. 3, pp 149-167. http://dx.doi.org/10.1561/102.00000027

Published: 16 Mar 2013
© 2013 C. Hagem
 
Subjects
Climate Change,  Market-based Policy Instruments,  Environmental Economics,  Industrial Organization
 
Keywords
D43L13Q54
Emissions permitsStrategic permit tradingClimate agreementsMarket power
 

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In this article:
Introduction
The Model
Results From the Literature
Incentives for Strategic Behavior
Numerical Example
Concluding Remarks
Appendix A
Appendix B
Appendix C
References

Abstract

In an international permit trading regime, the initial allocation of permits across countries determines the participating countries' trading position. Large permit trading countries on both sides of the market can exploit their market power in the permit market. We analyze how the competitive environment on the permit market affects countries' gain from strategic manipulation of the permit price. We conclude that gains from strategic behavior depend on whether there are other strategic players on the same or opposite side of the market.

DOI:10.1561/102.00000027