Lobbying for size and slice of the quota

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The formation and allocation of an emission quota are analyzed in a common agency framework with two stages. First, the principals lobby for the size of the aggregate quota. Second, the principals lobby for the individual slices of the quota. It is shown that the slices are allocated such that the marginal profits of the principals are equalized and that the size of the aggregate quota is either set at the efficient level characterized by the Samuelson's rule for public goods or distorted from that level. When the quota is distorted from the efficient level it is set such that the aggregate marginal profit is less than the marginal damage, resulting in an overallocation of individual and aggregate quotas. However, efficient level of the quota is obtained in a reasonable special case in which countries take the role of the principals. The results are extended to cover tradable emission permits.

Original languageEnglish
JournalInternational Tax and Public Finance
Pages (from-to)1143-1162
Number of pages20
Publication statusPublished - Oct 2021
MoE publication typeA1 Journal article-refereed

Fields of Science

  • 511 Economics
  • 512 Business and Management
  • Environmental policy
  • Emissions trading
  • Common agency
  • Political economy
  • Quotas

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