Contract-Based Trading Programs in Environmental Regulation


  • Andrew G. Keeler

    1. Keeler: Associate Professor, School of Public Policy and Management, The Ohio State University, 300 Fisher Hall, 2100 Neil Ave., Columbus, OH 43210-1144. Phone 1-614-292-8696.
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      This is a revision of a paper presented at the SOM Conference on Environmental Regulation under Incomplete Information and Enforcement, Copenhagen, Denmark, November 1999. The author is grateful for the suggestions made by conference participants and anonymous referees. The author is Associate Professor of Agricultural and Applied Economics at the University of Georgia.


Emissions trading markets have been successful in addressing pollution problems where regulated entities can be treated in a similar manner and precise control of emissions quantities across time and space is not critical. In other situations, trading must account for individual circumstances, complexity, and the patchwork of existing regulations. In these circumstances trading systems have elements of contracts, in that transactions are unique and must be negotiated and approved individually. Such programs imply a high payoff to improved environmental information and to innovations in trading systems that allow making better use of such information. (JEL Q21, Q25, Q28)