The use of transferable discharge permits as a water pollution control policy is rapidly increasing in the United States. Drawing on evidence from existing water quality trading programs, this paper provides a taxonomy of the forms that such markets take. Four main structures are identified: exchanges, bilateral negotiations, clearinghouses, and sole-source offsets. Each of these structures has its own strengths and weaknesses; none is optimal for all scenarios. Since market structure is largely determined by a program's rules, policy makers should be aware of the differences between these structures and the conditions under which each comes to be.
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Document Type: Research Article
Department of Agricultural Economics, Texas A&M University,
Institute of Renewable Natural Resources, Texas Water Resources Institute, and the Department of Recreation, Park, and Tourism Science, Texas A&M University
Publication date: December 1, 2002