Noncooperative models of permit markets

Abstract

The applicability of some popular and basic permit market theories has been questioned. Drawing on noncooperative equilibrium theory for pure exchange economies, this article adapts several well-established alternative models to permit exchange. Some qualitative properties of the associated equilibria are provided, including two games with equilibria that in a sense coincide. Nevertheless, as there exist quite a few models potentially applicable to emissions trading, with equilibria that range from autarky to Pareto optimality, it seems that economics lacks a broadly accepted basic theory for permit markets.