Environmental asset market failure, income transfer, and a reform of the tradeable emission permit system

This paper focuses on the intertemporal efficiency aspect of economies with environmental resources which have stock externalities. We show why and how such an economy is concerned with intertemporal inefficiency if the property right of the resource is established and traded in a competitive asset market. Moreover, we explore how this inefficiency can be resolved by an income transfer system, and show that the system can also contribute to environmental conservation. Finally, our argument in terms of the efficiency will be applied to a tradeable emission permit system which allows the “banking” of credits. We propose that the government gives credit hoarders a subsidy per credit and allows the credits to grow, provided that they are hoarded.