Imperfect Enforcement of Emissions Trading and Industry Welfare: A Laboratory Investigation
AbstractThis paper uses laboratory experiments to investigate the performance of emission permit markets when compliance is imperfectly enforced. In particular we examine deviations in observed aggregate payoffs and expected penalties from those derived from a model of risk-neutral payoff-maximizing firms. We find that the experimental emissions markets were reasonably efficient at allocating individual emission control choices despite imperfect enforcement and significant noncompliance. However, violations and expected penalties were lower than predicted when these are predicted to be high, but were about the same as predicted values when these values were predicted to be low. Thus, although a standard model of compliance with emissions trading programs tends to predict significantly higher violations than we observe when subjects have strong incentives to violate their emissions permits, individual emissions control responsibilities are distributed among firms as predicted.
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Bibliographic InfoPaper provided by University of Massachusetts Amherst, Department of Resource Economics in its series Working Papers with number 2008-1.
Length: 33 pages
Date of creation: Jul 2008
Date of revision:
enforcement; compliance; emissions trading; permit markets; pollution; laboratory experiments;
Other versions of this item:
- John Stranlund & James J. Murphy & John M. Spraggon & John K. Stranlund, 2012. "Imperfect Enforcement of Emissions Trading and Industry Welfare: A Laboratory Investigation," Working Papers 2012-06, University of Alaska Anchorage, Department of Economics.
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
- Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-08-06 (All new papers)
- NEP-ENE-2008-08-06 (Energy Economics)
- NEP-ENV-2008-08-06 (Environmental Economics)
- NEP-EXP-2008-08-06 (Experimental Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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- Timothy N. Cason & Lata Gangadharan, 2004. "Emissions Variability in Tradable Permit Markets with Imperfect Enforcement and Banking," Department of Economics - Working Papers Series 917, The University of Melbourne.
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"A Laboratory Investigation of Compliance Behavior under Tradable Emissions Rights: Implications for Targeted Enforcement,"
2005-1, University of Massachusetts Amherst, Department of Resource Economics.
- Murphy, James J. & Stranlund, John K., 2007. "A laboratory investigation of compliance behavior under tradable emissions rights: Implications for targeted enforcement," Journal of Environmental Economics and Management, Elsevier, vol. 53(2), pages 196-212, March.
- John K. Stranlund & James J. Murphy & John M. Spraggon, 2011.
"An Experimental Analysis of Compliance in Dynamic Emissions Markets,"
2011-01, University of Alaska Anchorage, Department of Economics.
- Stranlund, John K. & Murphy, James J. & Spraggon, John M., 2011. "An experimental analysis of compliance in dynamic emissions markets," Journal of Environmental Economics and Management, Elsevier, vol. 62(3), pages 414-429.
- John K. Stranlund & James J. Murphy & John M. Spraggon, 2010. "An Experimental Analysis of Compliance in Dynamic Emissions Markets," Working Papers 2010-3, University of Massachusetts Amherst, Department of Resource Economics.
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