Reducing transaction costs of tradable permit schemes using Blockchain smart contracts

Abstract

Abstract Tradable permit schemes (TPS) are market‐based policy instruments, which are claimed to be more statically and dynamically efficient in achieving their policy objectives compared to the traditional regulatory instruments. However, some researchers argue that the high level of transaction costs associated with these policy instruments might undermine their efficiency. This paper addresses this issue through exploring the use of Blockchain technology in order to lower transaction costs that arise from TPS transactions. More specifically, it identifies the benefits of using Blockchain smart contracts in implementing TPS that include: increasing the amount of relevant information available to interested actors thus reducing uncertainties; reducing the amount of irrelevant information available to interested actors thus decreasing complexities; correcting information asymmetries among the actors involved thus limiting opportunistic behaviours; lowering the need for the involvement of intermediaries thus decreasing direct monetary costs; and facilitating the linkage between buyers and sellers thus improving trading quality. These potential benefits can increase the efficiency of TPS by decreasing policy‐related transaction costs.