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

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  • Yasuyo Hamaguchi
  • Satoshi Mitani
  • Tatsuyoshi Saijo

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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File URL: http://www.rieti.go.jp/jp/publications/dp/04e009.pdf
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Bibliographic Info

Paper provided by Research Institute of Economy, Trade and Industry (RIETI) in its series Discussion papers with number 04009.

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Length: 20 pages
Date of creation: Feb 2004
Date of revision:
Handle: RePEc:eti:dpaper:04009

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  1. Hahn, Robert W, 1984. "Market Power and Transferable Property Rights," The Quarterly Journal of Economics, MIT Press, vol. 99(4), pages 753-65, November.
  2. 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.
  3. Hal R. Varian, 1994. "A Solution to the Problem of Externalities when Agents are Well-Informed}," Microeconomics 9401003, EconWPA.
  4. Harrison, Glenn W, 1989. "Theory and Misbehavior of First-Price Auctions," American Economic Review, American Economic Association, vol. 79(4), pages 749-62, September.
  5. Amos Tversky & Daniel Kahneman, 1979. "Prospect Theory: An Analysis of Decision under Risk," Levine's Working Paper Archive 7656, David K. Levine.
  6. 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.
  7. Montgomery, W. David, 1972. "Markets in licenses and efficient pollution control programs," Journal of Economic Theory, Elsevier, vol. 5(3), pages 395-418, December.
  8. Milgrom, Paul & Roberts, John, 1990. "Rationalizability, Learning, and Equilibrium in Games with Strategic Complementarities," Econometrica, Econometric Society, vol. 58(6), pages 1255-77, November.
  9. 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.
  10. Smith, Vernon L, 1982. "Microeconomic Systems as an Experimental Science," American Economic Review, American Economic Association, vol. 72(5), pages 923-55, December.
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Cited by:
  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. 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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