Ian A. MacKenzie

• The University of Queensland

This article investigates the relative efficiency of soft-price ('allowance reserve') regulation versus hard-price ('safety-valve') regulation in the presence of uncertainty. When policy variables are treated as exogenous the relative efficiency ranking is ambiguous. A small allowance reserve and low trigger price (relative to the expected price on...

We investigate the relationship between income and democracy. A theoretical framework is developed where citizens derive utility from both material goods and political rights. Citizens can devote their time either to creating material benefits or to political activism (that improves political liberties). We demonstrate a non-monotonic relationship...

We investigate observed rent dissipation—the ratio of the total costs of rent seeking to the monetary value of the rent—in winner-take-all and share contests, where preferences are more general than usually assumed in the literature. With concave valuation of the rent, we find that contests can exhibit observed over-dissipation if the contested ren...

This article investigates cap-and-trade markets in the presence of both political and market distortions. We create a model where dominant firms have the ability to rent seek for a share of pollution permits as well as influence the market equilibrium with their choice of permit exchange because of market power. We derive the equilibrium and show t...

We investigate the new institutional design for the US Regional Greenhouse Gas Initiative (RGGI). The scheme incorporates two allowance reserves that adjust the supply of allowances in the event of unexpectedly high or low allowance demand. These reserves are enacted if the clearing price breaches a predetermined set of trigger prices. Our experime...

In this article we investigate different market structures where decision makers are in-centivized by both profit and revenue. Our innovation is that we consider managers that evaluate revenue in a non-linear way, exhibiting diminishing marginal utility. This implies that incremental changes in revenue-for example due to demand shocks-generate prod...

We develop a generalized theory of resource conflict. We demonstrate that the existence of a resource curse (or blessing) relies on two fundamental elements: (i) market conditions; and (ii) the production technology or agents’ preferences, depending on the context under study. When resource prices are treated as exogenous, we obtain the conventiona...

This article proposes a new auction design for the efficient allocation of pollution permits. We show that if the auctioneer restricts the bidding rule of the uniform-price auction—coupled with a simple ex-post supply adjustment rule—then truthful bidding is obtained. Consequently, the uniform-price auction is more allocatively efficient than conve...

A contentious design issue within pollution markets is the choice of initial allocation mechanism. Within this debate, auctions have become the predominant method of allocation. Although auctions provide potential gains—such as revenue generation, efficiency, and price discovery—these benefits are rarely realized due to firms submitting non-truthfu...

We aim to explain the existence and severity of environmental policy diffusion, i.e., how a jurisdiction's regulation is closely followed by other, independent, jurisdictions. We outline a political economy model in which two lobby groups-representing industrial and environmental interests-seek to advocate or prevent domestic regulation. As product...

In this article we investigate oligopolies where decision makers are incentivized by profit and revenue. Our innovation is that managers derive utility from revenue in a potentially non-linear fashion. This allows for incremental changes in revenue to generate different production choices, depending on the amount of revenue generated by the firm. W...

This article investigates multi-unit uniform-price auctions with allowance reserves, where a fixed quantity of units is supplemented by an additional supply reserve. The reserve automatically releases units if a sufficiently high price is triggered. This mechanism is commonly used in pollution permit auctions. The main justification for implementin...

This article investigates share contests. In our framework we allow contestants to have more general preferences than have been used in the literature. Previous approaches have the unfortunate characteristic that contestants' marginal rates of substitution between the rent share allocated by the contest and their effort is constant regardless of th...

This article investigates pollution permit consignment auctions. In this process firms obtain an initial endowment of permits that must be consigned to the auctioneer for sale. In the auction, firms bid for permits, obtain their equilibrium permit allocations, and receive revenue from their consigned permits. It has been proposed that this auction...

Markets for pollution have become a popular regulatory instrument. In this article we investigate the implications of strategic trade in pollution permits. The permit market is developed as a strategic market game, where all firms are allowed to behave strategically and their roles as buyers or sellers of permits are determined endogenously with pr...

Rents and political motives are present in many aspects of public policy. This article considers the role of rents, rent seeking, and the political choice of environmental policy. Rents are introduced into the political choice of price and quantity regulation under conditions of uncertainty. The model shows how political-economy aspects affect the...

We investigate the efficiency of Coasean bargaining when transfers between agents are capped. We model a two-stage Coasean environment where, in the first stage, property rights are costly to attribute. After the attribution stage, agents voluntarily exchange over the level of harm. If property rights are attributed via an all-pay auction, then the...

Coasean arguments against the Pigouvian perspective are well established. A central tenet in this criticism argues that a Pigouvian tax may be a source of inefficiency: if parties were to bargain in the presence of a Pigouvian tax, (allocative) inefficiencies would occur—the so-called Buchanan–Stubblebine–Turvey Theorem. By analyzing a Coasean envi...

The conventional economic argument favors the use of market-based instruments over ‘command-and-control’ regulation. This viewpoint, however, is often limited in the description and characteristics of the latter; namely, environmental standards are often portrayed as lacking structured abatement incentives. Yet contemporary forms of command-and-con...

The conventional explanation for strikes is that they are caused by an asymmetry of information about the profitability of the firm – union members are uninformed whereas management are informed. Instead, this paper builds a model of strikes where a perception of unfairness provides an expressive benefit to vote for a strike. The asymmetry of infor...

In this paper we challenge the conventional view that strikes are caused by asymmetric information regarding firm profitability such that union members are uninformed. Instead, we build an expressive model of strikes where the perception of unfairness provides the expressive benefit of voting for a strike. The model predicts that larger union size...

Enacting market-based environmental regulation, such as emissions taxes and cap-and-trade programs, often create rents that are contested by agents. In this paper, we create a framework that compares social welfare from alternative market-based environmental policy instruments under the presence of rent seeking. We show that, contrary to the common...

We investigate the efficiency of Coasean bargaining when restrictions are placed on the set of feasible bargaining outcomes. When property rights are costly to (defend) appropriate, we find bargaining restrictions may be Pareto superior to unconstrained voluntary exchange. Under cost uncertainty over the externality, we show an efficient configurat...

Project-based emissions trading schemes, like the Clean Development Mechanism, are particularly prone to problems of asymmetric information between project parties and the regulator. In this paper, we extend the general framework on incomplete enforcement of policy instruments to reflect the particularities of credit-based mechanisms. The main focu...

Opportunistic behaviour due to incomplete contract enforcement is a risk in many economic transactions such as forest carbon sequestration contracts. In this paper, an enforcement-proof incentive contract is developed in which a buyer demands a guaranteed delivery of a good or service given a productive upfront payment, moral hazard in precaution,...

This paper investigates initial allocation choices in an international tradable pollution permit market. For two sovereign governments, we compare allocation choices that are either simultaneously or sequentially announced. We show sequential allocation announcements result in higher (lower) aggregate emissions when announcements are strategic subs...

Enacting market-based environmental regulation, such as emissions taxes and cap-and-trade programs, often create rents that are contested by agents. In this paper, we create a framework that compares social welfare from alter-native market-based environmental policy instruments under the presence of distributional conflict. We show that, contrary t...

The establishment of a tradable permit market requires the regulator to select a level of aggregate emissions and then distribute the associated permits to specific groups. Both these decisions create opportunities for rent seeking. In this paper, we use a contest model to analyse the incentives to rent seek for pollution permits and to analyse the...

Contests are a common method to describe the distribution of many different types of rents. Yet in many of these situations the utilisation of the prize plays an important role in determining agents payoffs and incentives. In this paper, we investigate the incentives to expend effort for a prize that produces consumption externalities and consider...

As carbon sinks, forests play a critical role in helping to mitigate the growing threat from anthropogenic climate change. Forest carbon offsets transacted between GHG emitters in industrialised countries and sellers in developing countries have emerged as a useful climate policy tool. A model is developed that investigates the role of incentives i...

This article was submitted without an abstract, please refer to the full-text PDF file.

This article was submitted without an abstract, please refer to the full-text PDF file.

Welfare comparisons of regulatory instruments under uncertainty, even in dynamic analyses, have typically focused on price versus quantity controls despite the presence of banking and borrowing provisions in existing emissions trading programs. This is true even in the presence of banking and borrowing provisions in existing emissions trading progr...

In this paper we advocate a new initial allocation mechanism for a tradable pollution permit market. We outline a Permit Allocation Contest (PAC) that distributes permits to firms based on their rank relative to other firms. This ranking is achieved by ordering firms based on an observable 'external action' where the external action is an activity...

This paper investigates the sequential announcement of domestic emissions caps by regulators in a federal or international-based tradable pollution permit market for a transboundary pollutant. A leader-follower framework is used to analyse the consequences of regulators sequentially announcing domestic allocation caps. We find the sequential choice...

The initial allocation of pollution permits is an important aspect of emissions trading schemes. We generalize the analysis of Böhringer and Lange (2005, Eur Econ Rev 49(8): 2041–2055) to initial allocation mechanisms that are based on inter-firm relative performance comparisons (including grandfathering and auctions, as well as novel mechanisms)....

In this paper we advocate a new initial allocation mechanism for a tradable pollution permit market. We outline a Permit Allocation Contest (PAC) that distributes permits to firms based on their rank relative to other firms. This ranking is achieved by ordering firms based on an observable ‘external action’ where the external action is an activity...

Abstract The establishment,of a tradable permit market,requires the regulator to select a level of aggregate,emissions,and then distribute the associated permits,(rent) to speci…c groups. In most circumstances, these decisions are often politically contentious and frequently in‡uenced by rent seeking behaviour. In this paper, we use a contest model...