This dissertation outlines the role that futures markets for tradable permits can play in improving the performance of incentive based policies for environmental externalities. An extensive literature on tradable permits exists. However, to my knowledge, the role of futures contracts as an instrument for responding to permit price uncertainty has not been considered, nor has their pricing performance in this role been examined. This research provides a theoretical description of how futures can be used to manage the price uncertainty associated with permit purchases. It then evaluates if the futures contract performance for the former U.S. Sulfur Dioxide (SO2) and the existing EU Carbon Dioxide (CO2) futures markets are consistent with the theoretical constructs. Overall, for the short time horizons examined, futures are the best information source regarding later permit prices for both markets examined. Consistent with the theoretical model presented, this implies futures markets can be looked to as a forecast of the incremental costs of emission control. The theory illustrates that firms can then use futures to eliminate the negative effects of permit price uncertainty and restore policy compliance cost minimization. These results demonstrate that an ideal futures market for emission permits can enhance policy performance.

The lack of food safety in a grower's produce presents the grower with two risks; (1) that an item will need to be recalled from the market, incurring substantial costs and damaging brand equity and (2) that the entire market for the commodity becomes impaired as consumers associate all produce as being risky to eat. Nowhere is this more prevalent than in the leafy green industry, where recalls are relatively frequent and there has been one massive E. coli outbreak that rocked the industry in 2006. The purpose of this thesis is to examine insurance policies that protect growers from these risks. In doing this, a discussion of current recall insurance policies is presented. Further, actuarially fair premiums for catastrophic revenue insurance policies are priced through a contingent claims framework. The results suggest that spinach industry revenue can be insured for $0.02 per carton. Given the current costs of leafy green industry food safety initiatives, growers may be willing to pay for such an insurance policy.