Selecting permit allocation rules for agricultural pollution control: a bargaining solution

One of the primary justifications for using transferable permits for pollution control is that they achieve a given level of emission reduction at the lowest cost. Although the initial allocation of pollution permits may have no impact in terms of efficiency, it does have a significant impact on equity. In this paper, we examine a variety of permit allocation rules for a small catchment in South West England. An asymmetric Nash bargaining framework is employed to characterise agents' co-operative behaviour and to explain their likely preferences over pen-nit allocation rules. The results indicate that the preferred allocation scheme depends upon the relative bargaining power of the agents. Furthermore, some potential links between ex-ante and ex-post equity criteria were also discussed. (C) 2003 Elsevier B.V. All rights reserved.