Optimisation of policy interventions in environmental quota

The paper analyses the governance choices in production quota with the Flemish nutrient production rights as a case. A static model of quota trade in the short run shows the inefficiency of discrete non-auctioned trade with fixed transaction costs. This model also shows that an obligation to quota sellers to stop their production stimulates structural change. A dynamic model of trade indicates that the measures taken to prevent speculative behaviour causes inefficiencies and stimulates overuse of quota if the penalties are too low. Finally, the dynamic model indicates that a flat rate reduction on traded quota combined with too low penalties for overuse stimulate the total production.