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Bringing Biophysical Models into the Economic Laboratory: An Experimental Analysis of Sediment Trading in Australia

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  • Tisdell, John G.

Abstract

Experimental economics has emerged and matured as a formal method for questioning and stress testing economic theory and assumptions concerning individual behavior. More recently, experimental methods have been used successfully in an economic laboratory to test alternative environmental policy options. The data underpinning these experiments is often stylized or hypothetical in nature. Ecologists and experimental economics have much to gain by exploring ways to underpin economic experiments with data generated from biophysical models in terms of external validity and salient features of the issue at hand. The study makes a contribution by demonstrating how underpinning experiments with regionally modeled biophysical data may give insights which would not necessarily arise from stylized data. In this study sediment data generated from an Environmental Management Support System (EMSS), a software model of sediment runoff in catchments was used to populate the player decision space. The study investigated the relative performance of four different instruments (closed first and second price call tenders, cap and trade and command and control regulation) as mechanisms for promoting riparian management and reducing total suspended solids exiting a catchment and, as traditional auction structures, logical choices for exploring the consequences of incorporating modeled biophysical data. The study found unexpected insights into player behavior which may not have been foreseen from stylized data, suggesting that further exploration of integrated biophysical economic experiments is warranted.

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Bibliographic Info

Paper provided by International Association of Agricultural Economists in its series 2006 Annual Meeting, August 12-18, 2006, Queensland, Australia with number 25631.

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Date of creation: 2006
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Handle: RePEc:ags:iaae06:25631

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Keywords: sediment trading; EMSS; natural resource markets; experimentation; Environmental Economics and Policy;

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  1. Fullerton, Don & Metcalf, Gilbert E., 2002. "Cap and trade policies in the presence of monopoly and distortionary taxation," Resource and Energy Economics, Elsevier, vol. 24(4), pages 327-347, November.
  2. Bonnie G. Colby, 2000. "Cap-and-Trade Policy Challenges: A Tale of Three Markets," Land Economics, University of Wisconsin Press, vol. 76(4), pages 638-658.
  3. Liski, Matti, 2001. "Thin versus Thick CO2 Market," Journal of Environmental Economics and Management, Elsevier, vol. 41(3), pages 295-311, May.
  4. Cason, Timothy N. & Gangadharan, Lata & Duke, Charlotte, 2003. "Market power in tradable emission markets: a laboratory testbed for emission trading in Port Phillip Bay, Victoria," Ecological Economics, Elsevier, vol. 46(3), pages 469-491, October.
  5. Fang, Feng & Easter, K. William, 2003. "Pollution Trading To Offset New Pollutant Loadings -- A Case Study In The Minnesota River Basin," 2003 Annual meeting, July 27-30, Montreal, Canada 22135, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  6. Richard Schmalensee & Paul L. Joskow & A. Denny Ellerman & Juan Pablo Montero & Elizabeth M. Bailey, 1998. "An Interim Evaluation of Sulfur Dioxide Emissions Trading," Journal of Economic Perspectives, American Economic Association, vol. 12(3), pages 53-68, Summer.
  7. Smith, Vernon L, et al, 1982. "Competitive Market Institutions: Double Auctions vs. Sealed Bid-Offer Auctions," American Economic Review, American Economic Association, vol. 72(1), pages 58-77, March.
  8. Segerson, Kathleen, 1988. "Uncertainty and incentives for nonpoint pollution control," Journal of Environmental Economics and Management, Elsevier, vol. 15(1), pages 87-98, March.
  9. Revesz, Richard L. & Stavins, Robert N., 2007. "Environmental Law," Handbook of Law and Economics, Elsevier.
  10. Reimund Schwarze & Peter Zapfel, 2000. "Sulfur Allowance Trading and the Regional Clean Air Incentives Market: A Comparative Design Analysis of two Major Cap-and-Trade Permit Programs?," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 17(3), pages 279-298, November.
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Cited by:
  1. Lowell, Kim & Drohan, Jon & Hajek, Charles & Beverly, Craig & Lee, Mark, 2007. "A science-driven market-based instrument for determining the cost of environmental services: A comparison of two catchments in Australia," Ecological Economics, Elsevier, vol. 64(1), pages 61-69, October.
  2. Boxall, Peter C. & Weber, Marian & Perger, Orsolya & Cutlac, Marius & Samarawickrema, Antony, 2008. "Results from the Farm Behaviour Component of the Integrated Economic-Hydrologic Model for the Watershed Evaluation of Beneficial Management Practices Program," Project Report Series 116268, University of Alberta, Department of Resource Economics and Environmental Sociology.
  3. Noussair, C.N. & Soest, D.P. van, 2014. "Economic Experiments and Environmental Policy: A Review," Discussion Paper 2014-001, Tilburg University, Center for Economic Research.

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