On the Use of Exchange Rates as Trading Rules in a Bilateral System of Transferable Discharge Permits

The use of a system of transferable discharge permitsto control the harmful effects of non-uniformly mixedpollutants requires the application of trading rulesin order to prevent permit trading among sources fromviolating environmental standards. The elements andproperties of bilateral trading rules can be analyzedmore easily once formulated as exchange rates, whichwould convert, in a cost-effective way, the emissionright potentially given up by the seller into an offsetting emission right acquired by the buyer. Inthis article, a new expression for such exchange ratesis proposed and then analyzed to infer someunexplored properties of the system. Copyright Kluwer Academic Publishers 2000