NONCOMPLIANT FIRMS IN TRANSFERABLE DISCHARGE PERMIT MARKETS - SOME EXTENSIONS

This paper extends the results of previous research on transferable discharge permit (TDP) markets with noncompliant firms to make a specific comparison between standards and TDP systems when regulatory authorities are unable to achieve full compliance. Particular attention is given to the importance of the shape of the penalty function facing noncompliant firms. The analysis indicates that under plausible penalty functions TDP markets may allow more pollution or a higher fraction of regulated firms out of compliance. These results highlight the importance of implementation in the success of pollution control strategies relying on TDP markets. © 1991.