NBER Publications by Michael S. Dworsky

This paper examines the implications of alternative allowance allocation designs under a federal cap-and-trade program to reduce emissions of greenhouse gases. We focus on the impacts on industry profits and overall economic output, employing a dynamic general equilibrium model of the U.S. economy. The model's unique treatment of capital dynamics permits close attention to profit impacts. We find that the effects on profits depend critically on the method of allowance allocation. Freely allocating fewer than 15 percent of the emissions allowances generally suffices to prevent profit losses among the eight industries that, without free allowances or other compensation, would suffer the largest percentage losses of profit. Freely allocating 100 percent of the allowances substantially ov...