Tradable emissions permits have important theoretical advantages over source-specific technical standards as a means for controlling pollution. Nonetheless, difficulties can arise in trying to implement an efficient, competitive market in emissions permits. Simple workable versions of the market concept may fail to achieve the competitive equilibrium, or to take account of important complexities in the relationship between the pattern of emissions and the geographical distribution of pollution. Existing regulatory law may severely limit the range of market opportunities that states can adopt.
This report examines the feasibility of tradable permits for controlling particulate sulfates in the Los Angeles airshed. Although the empirical part of the paper deals with a specific case, the methods developed have general applicability. Moreover, the particular market design that is proposed -- an auction process that involves no net revenue collection by the state -- has attractive features as a general model
