Complementarity of inspections and permits as leverages for capping emissions: experimental evidence
AbstractRecent analysis on the cost-effectiveness of inducing perfect compliance in cap and trade programs is based on the possibility that a regulator has of inducing each individual firm to emit the same level of pollution by altering the supply of permits and the monitoring probability according to theoretical models that assume rational and risk-neutral agents. In this paper we test this possibility based on a series of laboratory experiments. Contrary to what theory predicts, our experiments suggest that a regulator cannot manipulate the supply of permits and the monitoring probability as suggested by these models and keep the level of emissions of each individual firm constant. This result does not depend on whether or not we control for risk aversion. Policy implications are discussed.
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Bibliographic InfoPaper provided by Facultad de Ciencias Empresariales y Economia. Universidad de Montevideo. in its series Documentos de Trabajo/Working Papers with number 1207.
Date of creation: 2012
Date of revision:
Environmental policy; enforcement; penalty structure; emissions standards; emissions trading; laboratory experiments;
Find related papers by JEL classification:
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
- Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
- K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
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