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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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References

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  1. Milgrom, Paul & Roberts, John, 1990. "Rationalizability, Learning, and Equilibrium in Games with Strategic Complementarities," Econometrica, Econometric Society, vol. 58(6), pages 1255-77, November.
  2. Hahn, Robert W., 1982. "Market Power and Transferable Property Rights," Working Papers 402, California Institute of Technology, Division of the Humanities and Social Sciences.
  3. 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.
  4. Montgomery, W. David, 1972. "Markets in licenses and efficient pollution control programs," Journal of Economic Theory, Elsevier, vol. 5(3), pages 395-418, December.
  5. Smith, Vernon L, 1982. "Microeconomic Systems as an Experimental Science," American Economic Review, American Economic Association, vol. 72(5), pages 923-55, December.
  6. Amos Tversky & Daniel Kahneman, 1979. "Prospect Theory: An Analysis of Decision under Risk," Levine's Working Paper Archive 7656, David K. Levine.
  7. Yan Chen & Robert Gazzale, 2004. "When Does Learning in Games Generate Convergence to Nash Equilibria? The Role of Supermodularity in an Experimental Setting," American Economic Review, American Economic Association, vol. 94(5), pages 1505-1535, December.
  8. Hal R. Varian, 1994. "A Solution to the Problem of Externalities when Agents are Well-Informed}," Microeconomics 9401003, EconWPA.
  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. Harrison, Glenn W, 1989. "Theory and Misbehavior of First-Price Auctions," American Economic Review, American Economic Association, vol. 79(4), pages 749-62, September.
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Cited by:
  1. 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.
  2. Yan Chen & Robert Gazzale, 2004. "When Does Learning in Games Generate Convergence to Nash Equilibria? The Role of Supermodularity in an Experimental Setting," American Economic Review, American Economic Association, vol. 94(5), pages 1505-1535, December.

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