Double Dipping in Environmental Markets

Richard Woodward

MPRA Paper from University Library of Munich, Germany

Abstract: There is an increasing tendency to use markets to induce the provision of environmental services. As such markets increase in scope, potential market participants might sell multiple environmental services. The question we consider here is whether participants in such markets should be allowed to sell credits in more than one market simultaneously. Some have argued in favor of such “double dipping,” because it would make the provision of environmental services more profitable. In practice, however, most programs do not allow doubledipping. We show that if the optimal level of pollution abatement is sought, then double-dipping maximizes societal net benefits. However, if pollution policies are set in a piecemeal fashion, then the caps for each market are unlikely to be optimal and, in this second-best setting, a policy prohibiting double dipping can lead to greater social net benefits. We explore conditions under which a singlemarket policy is preferred, or equivalently, where piecemeal policies are likely to yield particularly inefficient outcomes.

Keywords: Environmental policy; tradable discharge permits; numerical methods; stacking (search for similar items in EconPapers)
JEL-codes: H41 Q0 Q58 (search for similar items in EconPapers)
Date: 2010-04
New Economics Papers: this item is included in nep-env and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Double-dipping in environmental markets (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:26185

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