@article{Hahn:92707,
      recid = {92707},
      author = {Hahn, Robert W. and Stavins, Robert N.},
      title = {The Effect of Allowance Allocations on Cap-and-Trade  System Performance},
      address = {2010-07},
      number = {838-2016-55656},
      series = {SD},
      pages = {37},
      year = {2010},
      abstract = {We examine an implication of the “Coase Theorem” which has  had an important impact both on environmental economics and  on public policy in the environmental domain. Under certain  conditions, the market equilibrium in a cap-and-trade  system will be cost-effective and independent of the  initial allocation of tradable rights. That is, the overall  cost of achieving a given aggregate emission reduction will  be minimized, and the final allocation of permits will be  independent of the initial allocation. We call this the  independence property. This property is very important  because it allows equity and efficiency concerns to be  separated in a relatively straightforward manner. In  particular, the property means that the government can  establish the overall pollution-reduction goal for a  cap-and-trade system by setting the cap, and leave it up to  the legislature – such as the U.S. Congress – to construct  a constituency in support of the program by allocating the  allowances to various interests without affecting either  the environmental performance of the system or its  aggregate social costs. Our primary objective in this paper  is to examine the conditions under which the independence  property is likely to hold – both in theory and in  practice. A number of factors can call the independence  property into question theoretically, including market  power, transaction costs, non-cost-minimizing behavior, and  conditional allowance allocations. We find that, in  practice, there is support for the independence property in  some, but not all cap-and-trade applications.},
      url = {http://ageconsearch.umn.edu/record/92707},
      doi = {https://doi.org/10.22004/ag.econ.92707},
}