Do Environmental Markets Improve Allocative Efficiency? U.S. Evidence

Working paper by Kyle C. Meng and Vincent Thivierge (NBER) develops a framework and empirical estimator to measure changes in allocative efficiency from market-based air pollution policies and applies it to two U.S. programs.

• Key results: Using administrative data and a quasi-experimental estimator, the authors find a 3.3 percentage point annually improvement in allocative efficiency under California’s RECLAIM program, and no detectable change under the U.S. NOx Budget Trading Program. The paper reports these program-specific, empirical estimates (Issue Date: August 2025, DOI: 10.3386/w34111).
• Data & implementation details: Analysis uses data accessed under the Federal Statistical Research Data Center (FSRDC) with multiple FSRDC project numbers (e.g., CBDRB-FY22-P2581-R10061, CBDRB-FY24-P2581-R11664). The authors cite greater heterogeneity in baseline facility characteristics under RECLAIM and differences in program implementation as factors supporting the results. Distinct statement: the views expressed are those of the authors and not necessarily those of the National Bureau of Economic Research or the U.S. Census Bureau.