Trading quasi-emission permits

I study the design of environmental policies for a regulator that has incomplete information on each ...rm’s emissions and production and abatement costs (e.g., urban air pollution in cities with many small polluting sources). Because of incomplete information on emissions, there is no policy that can implement the ...rst-best. Since the regulator can observe ...rms’ abatement technologies, however, it is possible to design a quasi-emissions trading program based on this information and show that it can provide higher welfare than command-and-control regulation such as technology and emission standards. I then use evidence from Santiago-Chile’s particulate quasi-emissions trading program to empirically test such claim. ¤ Professor of Economics at the Department of Economics of the Catholic University of Chile, Research Associate at the MIT Center for Energy and Environmental Policy Research (MIT-CEEPR), and Visiting Professor of Applied Economics at the MIT Sloan School of Management. I am grateful to Luis Cifuentes and Shreekant Gupta for comments and discussions; Rodrigo San Martín for excellent research assistance; and the Chile’s National Commision for the Environment for ...nancial support.