This evidence seems to suggest that tradable permits are no panacea, but they do have their niche.



Two examples of existing programs that did not make the list include the NOx Budget air pollution control program in the northeastern United States (Farrell et al., 1999) and programs to control conventional air pollutants in several states (Solomon and Gorman, 1998). For a large online bibliography covering these systems, see


Consider just three examples. In air pollution control, a legal challenge was brought in Los Angeles during June 1997 by the Los Angeles-based Communities for a Better Environment (Tietenberg, 1995a). In fisheries a challenge was brought against the halibut/sablefish tradable permits system in Alaska (Black, 1997) and Congress imposed a moratorium on the further use of a tradable permits approach in U.S. fisheries (National Research Council, 1999). Though both legal cases ultimately were thrown out, as of this writing the moratorium is still in effect, despite a recommendation by the National Research Council to lift it.


One author, for example, compares a tradable permits system to the sale of indulgences in the Middle Ages (Goodin, 1994).


For a previous survey that also examines tradable permit systems across resource settings, see Colby (2000).


Another characteristic that affects the allocation of control responsibility is the degree to which the pollutant accumulates over time. In the interest of brevity I have not included that case. For an analysis of that case, see Griffin (1987).


For a general equilibrium treatment that derives the efficient allocation using a utility framework, see Tietenberg (1973).


As an interesting aside, the efficiency approach would tend to minimize health damage for a given level of expenditure, but it would do so by subjecting some individuals to a higher level of individual risk.


In this essay, “sustainability perspective” is used to refer to an outcome in which the resource itself is preserved. Sometimes called “environmental sustainability” (Tietenberg, 2000:97), this approach is more restrictive than the conventional notions of weak sustainability and strong sustainability, which maintain the value of the total capital stock and natural capital stock respectively.


In U.S. air pollution control, for example, an “acceptable” pollutant concentration level in the ambient air has been established on the basis of human health considerations. For fisheries the total allowable catch is usually defined in terms of the “allowable biological catch.” Because neither of these processes involves an explicit calculation of net benefits, they would be efficient only by coincidence.


For an excellent formal treatment of the relationship between efficiency and sustainability in both renewable and nonrenewable resource contexts, see Heal (1998).


For a detailed explanation of the circumstances leading to the increasing evolution of market-based approaches to pollution control, see Tietenberg et al. (1999).


Unfortunately the usefulness of this corollary is limited whenever more than one goal needs to be satisfied by the initial allocation. This is commonly the case, for example, when the resource managers want to use the initial allocation both to build enough support to implement the program and to treat all claimants fairly. The allocations that satisfy each of those two goals may be quite different.


Inadequate monitoring and enforcement, of course, plagues all policy instruments, not just tradable permit systems.


In the case of market power in fisheries, the maximum number of permits that can be held by any individual or defined group routinely is limited by regulation.(National Research Council, 1999). In the case of transaction costs, it is possible to design administrative systems so as to minimize these costs (Tietenberg, 1998c).

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