Speculators are active in large markets for emission permits such as those developing under the Kyoto Protocol. Since speculators help risk‐averse firms hedging the risk stemming from uncertain future demand, their entry reduces permits' expected returns and volatility. We characterize the...

Tradable emission permits share many characteristics with financial assets. As on financial markets, speculators are likely to be active on large markets for emission permits such as those developing under the Kyoto Protocol. We show how the presence of speculators on a market for emission...

This paper examines to what extent incomplete compliance of environmental regulation mitigates the distortions caused by pre-existing labour taxes. We study the relative cost efficiency of three market-based instruments: emission taxes, tradable permits and output taxes. In a first-best setting...

Given the difficulty of monitoring, and even more so of enforcing, International Environmental Agreements, it is surprising that they are signed and implemented. This paper offers a theoretical model, which addresses this issue. The focus is on informational and coordination problems. A country...

In this paper, we explore automobile fuel efficiency policies in the presence of two externalities i) a global environmental problem and ii) international innovation spillovers. Using a simple model with two regions, we show that both a fuel tax and a tax on vehicles based on their fuel economy...