Using Contests to Allocate Pollution Rights

Ian Mackenzie, Nick Hanley, Tatiana Kornienko

Research output: Contribution to journalArticlepeer-review


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 or characteristic of the firm that is independent of their choice of emissions in the tradable permit market. We argue that this mechanism has a number of benefits over auctioning and grandfathering. Using this mechanism efficiently distributes permits, allows for the attainment of a secondary policy objective and has the potential to be more politically appealing than existing alternatives.
Original languageEnglish
Pages (from-to)2798–2806
Number of pages9
JournalEnergy Policy
Issue number7
Publication statusPublished - Jul 2009


  • Rank-order contests
  • Pollution permits
  • Initial allocation


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