Allocating Chlorofluorocarbon Permits

The use of economic incentives, such as pollution taxes or marketable permits, for environmental control has attracted increasing attention in recent years. This report examines alternative ways to implement marketable permits in the case of chlorofluorocarbon (CFC) regulations currently under consideration by the U.S. Environmental Protection Agency. The authors examine alternative strategies for administering marketable permits under a CFC quota. In one case, the permits would be sold (auctioned to the highest bidders). In the remaining cases, the permits would be given away (allocated) to different groups of recipients according to different rules (formulas) determining how many permits each recipient would receive. The policy choice among alternative forms of implementing CFC marketable permits is not an easy one. It requires tradeoffs among administrative costs, economic efficiency, and concerns about how regulations' costs are distributed among members of society.