LAUSR

Abstract Emission trading can not only significantly improve the environment quality, but also save the total social cost. The emission trading market can only overcome the market failure caused by externalities only if it has good transaction efficiency, and the market pricing system is the most direct factor that affects transaction efficiency. This paper constructs a three-party dynamic game model for market maker’s quotation trading to study the forming mechanism of the market maker’s optimal quotation, and constructs an institutional cost model for market maker’s quotation trading to compares the institutional costs of the market maker system. The study found that: (1) The optimal quotation of market makers is affected by marginal information costs, marginal pollution control costs, and initial allocation of emission permits. (2) The high cost of market information, the extremely uneven initial allocation of emission permits, and the free allocation scheme based on historical emissions may all lead to inefficient transactions. (3) When the trading volume is the same, compared with the competitive bidding mechanism, market maker quotes can save social information costs in the large-scale market. The study results of this paper can provide a theoretical basis for the development of China’s emission permits trading.