Tradable Permits in Developing Countries: Evidence From Air Pollution in Chile

Santiago was one of the first cities outside the OECD to implement a tradable permit program to control air pollution. This article looks closely at the program's performance over the past 10 years, stressing its similarities and discrepancies with trading programs implemented in developed countries and analyzing how it has reacted to regulatory adjustments and market shocks. Studying Santiago's experience allows us to say that a middle-income country such as Chile is capable of implementing this type of scheme even if much work remains before the design is really satisfactory. Considering the urgency of improving the environment in many of these countries, it is important to use the whole range of potential instruments.