The Effect of Allowance Allocation on Cap-and-Trade System Performance

Coase Conference: Markets, Firms and Property Rights: A Celebration of the Research of Ronald Coase, University of Chicago Law School. Robert W. Hahn, Senior Visiting Fellow, Smith School, Oxford, Robert N. Stavins, Albert Pratt Professor of Business and Government, Harvard Kennedy School.

We begin with “The Problem of Social Cost” (1960) … The Coase Theorem: Bilateral negotiation between the generator and recipient of an externality leads to the same efficient outcome regardless of the initial assignment of property rights (if no transaction costs, income effects, or third-party impacts).

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