Advanced Search
MyIDEAS: Login

Teaching Opportunity Cost in an Emissions Permit Experiment

Contents:

Author Info

  • Mandell, Svante

    ()
    (Swedish National Road & Transport Research Institute (VTI))

  • Holt, Chrles

    (Department of Economics, University of Virginia)

  • Myers, Erica

    (Resources for the Future)

  • Burtraw, Dallas

    (Resources for the Future)

  • Wråke, Markus

    (IVL Swedish Environmental Institute)

Abstract

This paper describes an individual choice experiment that can be used to teach students how to correctly account for opportunity costs in production decisions. Students play the role of producers who require a fuel input and an emissions permit for production. Given fixed market prices, they make production quantity decisions on the basis of their costs. Permits have a constant price throughout the experiment. In one treatment, students have to purchase both a fuel input and an emissions permit for each production unit. In a second treatment, they receive permits for free, and any unused permits are sold on their behalf at the permit price. If students correctly incorporate opportunity costs, they will have the same supply function in both treatments. This experiment motivates classroom discussion of opportunity costs and emissions permit allocation under cap-and-trade schemes. The European Union Emissions Trading Scheme provides a relevant example for classroom discussion, as industry earned significant windfall profits from free allocation of emissions allowances in the early phases of the program.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.rff.org/RFF/Documents/RFF-DP-09-22.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Swedish National Road & Transport Research Institute (VTI) in its series Working Papers with number 2009:6.

as in new window
Length: 12 pages
Date of creation: 25 May 2009
Date of revision:
Handle: RePEc:hhs:vtiwps:2009_006

Note: The paper is also part of the RFF discussion paper series.
Contact details of provider:
Postal: VTI, Transport Economics, P.O. Box 6056, SE-171 06 Solna, Sweden
Phone: +46-13-20 40 00
Fax: +46-13-14 14 36
Email:
Web page: http://www.vti.se/tek
More information through EDIRC

Related research

Keywords: opportunity cost; emissions permits; allowance allocation; classroom experiments;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

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.:
as in new window
  1. Markus Wråke & Erica Myers & Dallas Burtraw & Svante Mandell & Charles Holt, 2010. "Opportunity Cost for Free Allocations of Emissions Permits: An Experimental Analysis," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 46(3), pages 331-336, July.
  2. Fell, Harrison, 2008. "EU-ETS and Nordic Electricity: A CVAR Approach," Discussion Papers dp-08-31, Resources For the Future.
  3. Mandell, Svante & Wråke, Markus & Myers, Erica C. & Burtraw, Dallas & Holt, Charles A., 2009. "Pricing Strategies Under Emissions Trading: An Experimental Analysis," Working Papers 2009:1, Swedish National Road & Transport Research Institute (VTI).
  4. Shane Frederick, 2005. "Cognitive Reflection and Decision Making," Journal of Economic Perspectives, American Economic Association, vol. 19(4), pages 25-42, Fall.
  5. Lisa R. Anderson & Sarah L. Stafford, 2000. "Choosing Winners and Losers in a Classroom Permit Trading Game," Southern Economic Journal, Southern Economic Association, vol. 67(1), pages 212-219, July.
  6. Kilkenny, Maureen, 2000. "A Classroom Experiment About Tradable Permits," Staff General Research Papers 5241, Iowa State University, Department of Economics.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:hhs:vtiwps:2009_006. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mats Berggren).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.