THE MARKET FOR SULFUR-DIOXIDE EMISSIONS

The 1990 Clean Air Act Amendments initiated the first large-scale use of the tradable permit approach to pollution control. The theoretical case for this approach rests on the assumption of an efficient market for emission rights. Our empirical analysis shows that the emission ri ghts market created by the 1990 Amendments had become reasonably effic ient by mid-1994, We! also show that the auctions specified in the Ame ndments to jump-start trading had become a small part of the overall m arket. Finally, we demonstrate that the strategic bidding behavior dis cussed in the literature has had no effect on market prices.