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In this paper we advocate a new initial allocation mechanism for a tradable pollution permit market. We outline a Permit Allocation Contest (PAC) that distributes permits to ...rms based on their rank relative to other ...rms. This ranking is achieved by ordering ...rms based on an observable 'external action'where the external action is an activity or characteristic of the ...rm that is independent of their choice of emissions in the tradeable permit market. We show that this mechanism e¢doi:10.3929/ethz-a-005562739 fatcat:y2y3n5k3ivdqtacuokehi6fcwy