Permit trading with flow pollution and stock pollution

Water pollutants are non-uniformly mixed across space and different in the persistence of environmental damage. Their marginal environmental damage could vary to a large degree with emission locations. The efficient pollution control should integrate heterogeneity in the marginal environmental damage caused by pollutants. However, little literature on permit trading has considered the scale and the persistence of environmental damage in the meantime. This paper designs proper trading ratios in permit trading to alleviate environmental damage from both aspects. It finds that it is not only important but also indispensable to incorporate the decay rate of pollutant, the discount rate, and the initial pollutant stock into permit trading, so as to achieve the efficient pollution control.