Skip to main content
Article thumbnail
Location of Repository

The efficiency, equity and politics of emissions permit trading

By Myrna Holtz Wooders and Ben Zissimos


This paper illustrates that an international permit trading system may hurt relatively poor countries by making associated economic activities unaffordable. A model is constructed in which the free market solution is Pareto inefficient as a result of pollution. The introduction of tradable permits allows pollution to be internalised, and brings about an increase in the total social surplus. But when incomes vary, this may not lead to a Pareto improvement; those in poor countries stop the polluting activity because they cannot afford to do otherwise. Only those in relatively rich countries are made better off. This may explain why poor countries are reluctant to ratify the Kyoto Protocol, itself advocating a permit trading scheme. The politico-economic implications of permit trading are also examined. We show that the democratic requirements for ratification impose a lower bound on pollution reduction that can be achieved through a system of pollution permits with trade

Topics: HC
Publisher: University of Warwick, Department of Economics
Year: 2001
OAI identifier:

Suggested articles


  1. (2000). An update of recent research from the Hadley Centre.” Available on-line at http://www.meto¢
  2. (1989). Continuum economies with …nite coalitions: Core, equilibria, and widespread externalities’, doi
  3. (2000). Emissions baselines: Estimating the unknown.
  4. (2000). Free trade and global warming: a trade theory view of the Kyoto Protocol.” NBER working paper 7657 doi
  5. Market power and transferable property rights.” doi
  6. (1999). On f-core equivalence in a ContinuumEconomy with Widespread Externalities,” doi
  7. (1988). On the e¢ciency of competitive markets for operating licenses.” doi
  8. (1994). Taxes versus tradable discharge permits.” doi
  9. (1989). The core of a continuum economy with widespread externalities and …nite coalitions: >From …nite to continuum economics’, doi
  10. (1995). The dual political economy of taxes and tradable permits.” doi
  11. (2000). US rebu¤ heats up climate talks.” Financial Times 21/11/00, accessible on-line at
  12. (1999). Wooders(1994) “Widespread externalities and perfectly competitive markets: examples.” doi
  13. (1994). World Resources 1998-99: Environmental Change and Human Health. A joint publication by The World Resources Institute,
  14. (1999). World Resources 1998-99: Environmental Change and Human Health. A joint publication by The World Resources Institute, United Nations Environmental Programme, United Nations Development Programme,

To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.