FEEM working papers "Note di lavoro" series
2002 .036

The Tradable Permits Approach to Protecting the Commons: What Have We Learned?


Authors: Tom Tietenberg
Series: Climate Change and Sustainable Development
Editor: Carlo Carraro
Type: Book
Keywords: Emissions trading,individual tradable quotas,water rights,pollution control policy,economic incentives,tradable permits
JEL n.: Q22,Q25,Q28
JEL: forthcoming in Carrots, Sticks and Sledgehammers: A Retrospective on Twemty Years of Market-Based Incentives for Environmental Protection
Published in: Oxford University Press

Abstract

This essay reviews the implementation experience with three main applications of tradable permit systems: air pollution control, water supply and fisheries management. Opening with a brief summary of the theory behind these programs and both the economic and environmental consequences anticipated by this theory, it proceeds with a description of the common elements these programs share and the design questions posed by the approach. These include the setting of the limit on access, the initial allocation of rights, transferability rules (both among participants and across time) as well as procedures for monitoring and enforcement. It continues by examining how these design questions have been answered by these three applications and how the answers have been influenced by changing technology, increased familiarity with the system and a desire to respond to some of the controversies surrounding the use of these approaches. The hard evidence on the economic and environmental consequences of adopting these approaches is juxtaposed with the expectations created by the economic theory of tradable permits. The final section draws together some tentative lessons that can be drawn from this experience.
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