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30 Duke Envtl. L. & Pol'y F. 1 (2019-2020)

handle is hein.journals/delp30 and id is 1 raw text is: THE COMPLEXITY DILEMMA IN POLICY MARKET DESIGN TODD S. AAGAARD* & ANDREW N. KLEIT** Regulators are increasingly pursuing their policy objectives by creating markets. To create a policy market, regulators require firms to procure a product that is socially useful but that confers little direct private benefit to the acquiring party. Examples of policy markets include pollutant emissions trading programs, renewable energy credit markets, and electricity capacity markets. Existing scholarship has tended to analyze policy markets simply as market-based regulation. Although not inaccurate, such inquiries are necessarily incomplete because they do not focus on the distinctive traits of policy markets. Policy markets are neither typical regulations nor typical markets. Concentrating on policy markets as a distinctive type of market brings to light common characteristics of such markets, which in turn generates insights into how they can be used more effectively to implement policy. In particular, this Article focuses on a recurring fundamental challenge in policy market design: managing complexity. Typical markets manage complexity through market forces. As a regulatory creation, however, policy markets require regulators to manage their complexity. This poses what we call the complexity dilemma, which requires regulators to balance strong pressures both toward and away from complexity. The central argument of this Article is that although policy markets are an importantpart of a regulator's toolkit, they are also subject to complexity that limits their usefulness. Understanding the complexity dilemma and Copyright © 2019 Todd S. Aagaard & Andrew N. Kleit. Professor of Law, Villanova University Charles Widger School of Law. Professor of Energy and Environmental Economics and MICASU Faculty Fellow, The Pennsylvania State University. In appreciation for their helpful comments on drafts of this Article, we thank Bruce Huber, Mark Niefer, Shelley Welton, and James Wilson, as well as participants in the Fifth Annual Sustainability Conference of American Legal Educators at the Sandra Day O'Connor (Arizona State University) College of Law and the 38th Annual Advanced Workshop in Regulation and Competition at Rutgers University Center for Research in Regulated Industries.