Abstract
The state of Wisconsin has recently established the legislative basis for what may be the first, operating water‐pollution permit market in the United States. The efficient properties of such markets have been discussed widely in the theoretical literature, but little empirical work has been published regarding the potential cost savings attainable in specific situations. This paper describes part of the empirical analysis that supported the creation of a transferable discharge permit (TDP) market on the Fox River in Wisconsin. A multiperiod water quality planning model is developed to illustrate the performance of a TDP market under conditions of varying stream flow and temperature. The model is applied to the case of the Fox River and is used to compare the cost of achieving target water quality levels under conventional regulatory rules with the cost associated with operation of a TDP market. In addition to the cost estimates, the simulation of market performance yields information on the probable pattern of trading that may occur in the Fox River TDP market.
Published Version
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