Market-based policies for urban air pollution with evidence from Santiago-Chile Juan-Pablo Montero ¤ Catholic University of Chile and MIT September 25, 2002 Abstract I study the design of environmental policies for a regulator that has incomplete informa- tion on …rms’ emissions and costs of production and abatement (e.g., air pollution in cities with numerous small polluting sources). Because of incomplete information on emissions, there is no policy that can implement the …rst-best. Since the regulator can observe …rms’ abatement technologies, however, it is possible to design a quasi-emissions trading program based on this information and show that it can provide higher welfare than command-and- control regulation such as technology or emission standards. I then empirically examine this claim using evidence from a particulate quasi-emissions trading program in Santiago, Chile. ¤ <jmontero@faceapuc.cl> Professor of Economics at the Catholic University of Chile (PUC) and Research Associate at the MIT Center for Energy and Environmental Policy Research (CEEPR). This paper was written while I was a Visiting Professor of Applied Economics at the MIT Sloan School of Management. I am grate- ful to Luis Cifuentes, Denny Ellerman, Shreekant Gupta, Paul Joskow, Matti Liski, José Miguel Sánchez and seminar participants at MIT, Econometric Society Meeting (UCLA), PUC and Universidad de Concepción for comments and discussions; Rodrigo San Martín for research assistance; and the Chile’s National Commision for the Environment and CEEPR for …nancial support. 1