Dynamic Efficiency of Emission Trading Markets: An Experimental Study
AbstractThis 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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Bibliographic InfoPaper provided by Max Planck Institute of Economics, Strategic Interaction Group in its series Papers on Strategic Interaction with number 2005-07.
Length: 19 pages
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Find related papers by JEL classification:
- Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Costs; Distributional Effects; Employment Effects
- Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
- Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-02-27 (All new papers)
- NEP-ENE-2005-02-27 (Energy Economics)
- NEP-ENV-2005-02-27 (Environmental Economics)
- NEP-EXP-2005-02-27 (Experimental Economics)
- NEP-RES-2005-02-27 (Resource Economics)
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