MARKETS FOR POLLUTION-CONTROL WHEN FIRMS ARE NONCOMPLIANT

The problem of noncompliance and enforcement in transferable discharge permit (TDP) markets has not received much attention. This paper examines the consequences of noncompliance for a TDP market given fairly general assumptions about the characteristics of the enforcement policy in place. The analysis reveals that when firms are noncompliant TDP markets retain their efficiency property only under some fairly stringent conditions. The effect of noncompliance on the equilibrium permit price raises some important questions about the ability of a TDP market to achieve, and remain in, equilibrium when firms are noncompliant. © 1990.