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Long-Run Implications of Alternative Emission Trading Plans: An Experiment with Robot Traders

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Author Info

  • Neil Buckley
  • R. Andrew Muller
  • Stuart Mestelman

Abstract

Two approaches to emmisions trading are cap-and-trade, in which an aggragate cap on emmisions is distributed in the form of permits, and baseline-and-credit, in which firms earn credits for emissions below their baselines. Theoretical considerations suggest the long-run equilibria of the two plans will differ if baselines are proportional to output, because a variable baseline is equivalent to an output subsidy. This paper reports on a laboratory environment designed to test this prediction. A computerized environment has been created in which subjects representing firms choose capacity and emission rates and participate in markets for permits or credits and for output. Demand for output is simulated. All decisions are tracked through a double-entry bookkeeping system. The timing of decisions was adjusted to avoid short-run instability. The paper reports the parameterization for an experiment with human traders and results of a simulated experiment using robots.

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Bibliographic Info

Paper provided by McMaster University in its series Department of Economics Working Papers with number 2003-04.

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Length: 43 pages
Date of creation: Apr 2003
Date of revision:
Handle: RePEc:mcm:deptwp:2003-04

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Cited by:
  1. Neil J. Buckley, 2004. "Short-Run Implications of Cap-and-Trade versus Baseline-and-Credit Emission Trading Plans: Experimental Evidence," Department of Economics Working Papers 2004-05, McMaster University.
  2. Neil J. Buckley & R. Andrew Muller & Stuart Mestelman, 2004. "Cap-and-Trade versus Baseline-and-Credit Emission Trading Plans: Experimental Evidence Under Variable Output Capacity," McMaster Experimental Economics Laboratory Publications 2004-06, McMaster University.
  3. Neil J. Buckley & R. Andrew Muller & Stuart Mestelman, 2005. "Baseline-and-Credit Emission Permit Trading: Experimental Evidence Under Variable Output Capacity," Department of Economics Working Papers 2005-03, McMaster University.
  4. Neil J. Buckley, 2004. "Short-Run Implications of Cap-and-Trade versus Baseline-and-Credit Emission Trading Plans: Experimental Evidence," McMaster Experimental Economics Laboratory Publications 2004-03, McMaster University.
  5. Neil J. Buckley & S. Mestelman & Andrew Muller, 2004. "Implications of Alternative Emission Trading Plans: Experimental Evidence," Department of Economics Working Papers 2004-07, McMaster University.

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