Working Paper: NBER ID: w25235
Authors: Garth Heutel
Abstract: Allowing emissions permits to be banked and borrowed over time can yield efficiency gains. I develop a model to demonstrate that banking and borrowing can also be allowed for a price policy. I compare expected welfare between price and quantity policies, with and without banking, under several different scenarios regarding uncertainty. A bankable policy can provide an efficiency improvement by allowing for smoothing of costs, though it does not necessarily dominate a policy that does not allow banking. The ranking of prices vs. quantities and of bankability vs. non-bankability depends on both the slopes of marginal costs and benefits and on the specification of uncertainty.
Keywords: No keywords provided
JEL Codes: D62; H23; Q54; Q58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| bankable prices (G13) | expected welfare (D69) |
| ability to bank (G21) | improved efficiency (D61) |
| bankable prices when planner observes shocks (E39) | first best outcome (C52) |
| bankable prices does not offer unique advantage (G19) | non-bankable policies (G21) |
| certain conditions (C62) | bankable prices may not dominate non-bankable prices (G19) |