This study investigates the dynamic efficiency of an emission regulation regime where companies competitively pay for emission licences. We embed the emission licence market in a Cournot model where the price of emission licences is subject to strategic tradeoff between licences and abatement technologies. Unlike the standard Cournot model, agents have two action parameters, quantities bought on the licence market and investments into abatement technology. We want to investigate the implications of this market design on the strategic behavior regarding companies' incentives to invest in those technologies. Data from a series of laboratory experiments supports the theoretical predictions for subjects' investment into abatement technology. With respect to the adaptation process of individual quantities for licences we find that a majority of subjects adjusts on the market by imitation while a minority entertains a trial and error notion.
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Paper provided by Max Planck Institute of Economics, Strategic Interaction Group in its series Papers on Strategic Interaction with number
2005-07.
References listed on IDEAS 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.:
Steffen Huck & Hans-Theo Normann & Joerg Oechssler, 2004.
"Through Trial and Error to Collusion,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(1), pages 205-224, 02.
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