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Emission Trading with Shares and Coupons : A Laboratory Experiment

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  • Stuart Mestelman
  • Andrew Muller

Abstract

Increasing attention is being paid to emission trading programs for the control of air and water pollution. The United States EPA has implemented a tradable emission allowance program for sulphur oxide. The EPA auction has been investigated in the laboratory by Cronshaw and Brown-Kruse and by Franciosi, Isaac, Pingry, and Reynolds. A somewhat different proposal has been made for controlling nitrous oxides in southern Ontario. Trade would occur in coupons (emission permits) and shares (entitlements to coupons). This paper reports a laboratory investigation of the Canadian proposal in which the experimental design developed by Cronshaw and Brown-Kruse was modified to reflect the proposed Canadian institution. The results indicate dispersed but relatively stable prices, higher efficiency than obtained in related experiments modelling the EPA plan, and little arbitrage between share and coupon prices. The results could be due to differences in the market institutions or the training of the subjects.

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Bibliographic Info

Paper provided by McMaster University in its series McMaster Experimental Economics Laboratory Publications with number 1994-01.

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Length: 35 pages
Date of creation: Jan 1994
Date of revision:
Handle: RePEc:mcm:mceelp:1994-01

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Cited by:
  1. R. Andrew Muller & Stuart Mestelman, 1998. "What have we learned from emissions trading experiments?," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 19(4-5), pages 225-238.
  2. Bohm, Peter & Carlén, Björn, 1998. "Emission Quota Trade among the Few: Laboratory Evidence of Joint Implementation among Committed Countries The Complete Version," Research Papers in Economics 1997:5, Stockholm University, Department of Economics.
  3. Timothy Cason, 2003. "Buyer Liability and Voluntary Inspections in International Greenhouse Gas Emissions Trading: A Laboratory Study," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 25(1), pages 101-127, May.
  4. Stuart Mestelman & Andrew Muller, 1997. "Emissions Trading with Shares and Coupons when Control over Discharges is Uncertain," McMaster Experimental Economics Laboratory Publications 1997-01, McMaster University.
  5. Tisdell, John G. & Grainger, Corinne, 2008. "An Experimental Economic Analysis of Carbon Trading Options for Australia," 2008 Conference, August 28-29, 2008, Nelson, New Zealand 96661, New Zealand Agricultural and Resource Economics Society.
  6. Bohm, Peter, 2003. "Experimental evaluations of policy instruments," Handbook of Environmental Economics, in: K. G. Mäler & J. R. Vincent (ed.), Handbook of Environmental Economics, edition 1, volume 1, chapter 10, pages 437-460 Elsevier.
  7. Shaul Ben-David & David Brookshire & Stuart Burness & Michael McKee & Christian Schmidt, 2000. "Attitudes toward Risk and Compliance in Emission Permit Markets," Land Economics, University of Wisconsin Press, vol. 76(4), pages 590-600.
  8. Bohm, Peter & Carlen, Bjorn, 1999. "Emission quota trade among the few: laboratory evidence of joint implementation among committed countries," Resource and Energy Economics, Elsevier, vol. 21(1), pages 43-66, January.

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