Most environmentalists favor the reduction in CO2 emissions but oppose international trade in emissions permits. Although economic theory provides a strong case in favor of trade in permits, there is little empirical evidence of the size of potential benefits. We estimate a structural model of...

We study a model in which the level of environmental regulation depends on abatement costs, which depend on aggregate levels of investment in abatement capital. Firms are non-strategic. When emissions quotas are not tradable, there are multiple competitive equilibria to the investment problem....

Under asymmetric information between firms and a regulator, intertemporal trade of pollution permits can increase welfare relative to both emissions taxes and cap and trade (quotas). In the subgame perfect equilibrium, banking and borrowing dominates taxes and quotas for a large region of...