Optimal monitoring of credit-based emissions trading under asymmetric information
MacKenzie, Ian A.
- Working Paper
Rights / licenseIn Copyright - Non-Commercial Use Permitted
Project-based emissions trading schemes, like the Clean Development Mechanism, are particularly prone to problems of asymmetric information between project parties and the regulator. In this paper, we extend the general framework on incomplete enforcement of policy instruments to reflect the particularities of credit-based mechanisms. The main focus of the analysis is to determine the regulator’s optimal spot-check frequency given plausible assumptions of incomplete enforcement under asymmetric information on reduction costs and heterogeneous verifiability of projects. We find that, depending on the actual abatement cost and penalty schemes, optimal monitoring for credit-based systems is often discontinuous and significantly differs from the one to be applied for cap-andtrade schemes or environmental taxes. We conclude that, in a real-world context, project admission should ultimately be based on the criterion of verifiability Show more
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Journal / seriesEconomics Working Paper Series
Pages / Article No.
PublisherCER-ETH - Center of Economic Research at ETH Zurich
SubjectENVIRONMENTAL PROTECTION LAW; ASYMMETRIC INFORMATION (INFORMATION THEORY); UMWELTSCHUTZRECHT; UMWELTÖKONOMIE + ÖKOLOGISCHE WIRTSCHAFT; Environmental regulation; TRADABLE EMISSION PERMITS (ENVIRONMENTAL CHARGES); Audits and compliance; ASYMMETRISCHE INFORMATIONEN (INFORMATIONSTHEORIE); MICROECONOMICS; HANDELBARE EMISSIONSBEWILLIGUNGEN + HANDELBARE ZERTIFIKATE (UMWELTABGABEN); MIKROÖKONOMIE; Project-based emissions trading systems; ENVIRONMENTAL ECONOMICS + ECOLOGICAL ECONOMICS
Organisational unit03635 - Bretschger, Lucas / Bretschger, Lucas
02045 - Dep. Geistes-, Sozial- u. Staatswiss. / Dep. of Humanities, Social and Pol.Sc.
03361 - Schubert, Renate / Schubert, Renate
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