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Does the Varian Mechanism Work?--Emissions Trading as an Example

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Author Info

  • Yasuyo Hamaguchi

    (Faculty of Economics, Kyoto sangyo University, Japan)

  • Satoshi Mitani

    (Matsui Securities Co., Ltd., Japan)

  • Tatsuyoshi Saijo

    (Institute of social and Economic Research, Osaka University, Japan)

Abstract

This paper investigates whether Varian's(1994) compensation mechanism can work in a laboratory. The results show that this mechanism does not work as in the theory. We found that the magnitude of penalties crucially affects subjects' behavior.

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Bibliographic Info

Article provided by College of Business, and College of Finance, Feng Chia University, Taichung, Taiwan in its journal International Journal of Business and Economics.

Volume (Year): 2 (2003)
Issue (Month): 2 (August)
Pages: 85-96

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Handle: RePEc:ijb:journl:v:2:y:2003:i:2:p:85-96

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Keywords: emissions trading; compensation mechanism; experiments;

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References

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  1. Yan Chen & Robert S. Gazzale, 2004. "When Does Learning in Games Generate Convergence to Nash Equilibria? The Role of Supermodularity in an Experimental Setting," Department of Economics Working Papers 2004-02, Department of Economics, Williams College.
  2. Montgomery, W. David, 1972. "Markets in licenses and efficient pollution control programs," Journal of Economic Theory, Elsevier, vol. 5(3), pages 395-418, December.
  3. Weimann, Joachim & Yang, Chun-Lei & Vogt, Carsten, 2000. "An experiment on sequential rent-seeking," Journal of Economic Behavior & Organization, Elsevier, vol. 41(4), pages 405-426, April.
  4. Hahn, Robert W., 1982. "Market Power and Transferable Property Rights," Working Papers, California Institute of Technology, Division of the Humanities and Social Sciences 402, California Institute of Technology, Division of the Humanities and Social Sciences.
  5. Milgrom, Paul & Roberts, John, 1990. "Rationalizability, Learning, and Equilibrium in Games with Strategic Complementarities," Econometrica, Econometric Society, Econometric Society, vol. 58(6), pages 1255-77, November.
  6. Smith, Vernon L, 1982. "Microeconomic Systems as an Experimental Science," American Economic Review, American Economic Association, vol. 72(5), pages 923-55, December.
  7. Harrison, Glenn W, 1989. "Theory and Misbehavior of First-Price Auctions," American Economic Review, American Economic Association, vol. 79(4), pages 749-62, September.
  8. Misiolek, Walter S. & Elder, Harold W., 1989. "Exclusionary manipulation of markets for pollution rights," Journal of Environmental Economics and Management, Elsevier, vol. 16(2), pages 156-166, March.
  9. Amos Tversky & Daniel Kahneman, 1979. "Prospect Theory: An Analysis of Decision under Risk," Levine's Working Paper Archive 7656, David K. Levine.
  10. Varian, H,R., 1991. "A Solution to the Problem of Externalities when Agents are Well-Informed," Papers, Michigan - Center for Research on Economic & Social Theory 10, Michigan - Center for Research on Economic & Social Theory.
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Citations

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Cited by:
  1. repec:dgr:uvatin:2012132 is not listed on IDEAS
  2. repec:dpr:wpaper:0874 is not listed on IDEAS
  3. Yan Chen & Robert Gazzale, 2004. "When Does Learning in Games Generate Convergence to Nash Equilibria? The Role of Supermodularity in an Experimental Setting," American Economic Review, American Economic Association, vol. 94(5), pages 1505-1535, December.
  4. Estelle Midler & Charles Figuières & Marc Willinger, 2013. "Choice overload, coordination and inequality: three hurdles to the effectiveness of the compensation mechanism?," Working Papers, LAMETA, Universtiy of Montpellier 13-01, LAMETA, Universtiy of Montpellier, revised Feb 2013.
  5. Charness, Gary & Frechette, Guillaume R. & Qin, Cheng-Zhong, 2007. "Endogenous transfers in the Prisoner's Dilemma game: An experimental test of cooperation and coordination," Games and Economic Behavior, Elsevier, vol. 60(2), pages 287-306, August.

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