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(2017) Emission Permit Trading with Global Externality Problems. Tapio Palokangas, HECER, University of Helsinki.

Abstract.  I examine a set of heterogeneous countries where firms produce goods from emitting inputs and fixed resources. Emissions cause global pollution that harms everyone’s welfare. There is a benevolent international regulator that grants country-specific emission permits. It is shown that welfare decreases, if the countries are allowed to trade in emission permits. If the sellers of permits are on the average richer than the buyers, then the regulator grants too much, and if poorer, too little permits from the welfare point of view.

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