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Regulation in Environmental Markets: What Can We Learn from Experiments to Reduce Salinity?

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  • Charlotte Duke
  • Lata Gangadharan

Abstract

Market based mechanisms are growing in importance in environmental policy making. In theory market based mechanisms equate marginal abatement costs between polluting sources, thereby allocating emissions control responsibility at least cost. The step from theory to field implementation is, however, difficult, as many aspects of policy must be made operational at the same time. Policy mistakes can be very costly to society and are extremely difficult to correct ex-post. Experimental Economics is an innovative method beginning to be used to design, test and illustrate public policy prior to field implementation. In this paper we discuss two types of market incentives, taxes and tradable emissions permits. We then illustrate an experiment being implemented to test these market mechanisms for the management of salinity in the Murray Darling Basin.
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Suggested Citation

  • Charlotte Duke & Lata Gangadharan, 2005. "Regulation in Environmental Markets: What Can We Learn from Experiments to Reduce Salinity?," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 38(4), pages 459-469, December.
  • Handle: RePEc:bla:ausecr:v:38:y:2005:i:4:p:459-469
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    References listed on IDEAS

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    1. Foster, Vivien & Hahn, Robert W, 1995. "Designing More Efficient Markets: Lessons from Los Angeles Smog Control," Journal of Law and Economics, University of Chicago Press, vol. 38(1), pages 19-48, April.
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    3. 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.
    4. Cason, Timothy N. & Plott, Charles R., 1996. "EPA's New Emissions Trading Mechanism: A Laboratory Evaluation," Journal of Environmental Economics and Management, Elsevier, vol. 30(2), pages 133-160, March.
    5. Cason Timothy N., 1993. "Seller Incentive Properties of EPA's Emission Trading Auction," Journal of Environmental Economics and Management, Elsevier, vol. 25(2), pages 177-195, September.
    6. Kopczuk, Wojciech, 2003. "A note on optimal taxation in the presence of externalities," Economics Letters, Elsevier, vol. 80(1), pages 81-86, July.
    7. Stavins Robert N., 1995. "Transaction Costs and Tradeable Permits," Journal of Environmental Economics and Management, Elsevier, vol. 29(2), pages 133-148, September.
    8. Stavins, Robert N., 1996. "Correlated Uncertainty and Policy Instrument Choice," Journal of Environmental Economics and Management, Elsevier, vol. 30(2), pages 218-232, March.
    9. Baumol,William J. & Oates,Wallace E., 1988. "The Theory of Environmental Policy," Cambridge Books, Cambridge University Press, number 9780521322249, April.
    10. Cason, Timothy N & Gangadharan, Lata, 1998. "An Experimental Study of Electronic Bulletin Board Trading for Emission Permits," Journal of Regulatory Economics, Springer, vol. 14(1), pages 55-73, July.
    11. Adar, Zvi & Griffin, James M., 1976. "Uncertainty and the choice of pollution control instruments," Journal of Environmental Economics and Management, Elsevier, vol. 3(3), pages 178-188, October.
    12. Robert W. Hahn, 1984. "Market Power and Transferable Property Rights," The Quarterly Journal of Economics, Oxford University Press, vol. 99(4), pages 753-765.
    13. Lata Gangadharan, 2000. "Transaction Costs in Pollution Markets: An Empirical Study," Land Economics, University of Wisconsin Press, vol. 76(4), pages 601-614.
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    Cited by:

    1. Thomas Spencer & Tihomir Ancev & Jeff Connor, 2009. "Improving Cost Effectiveness of Irrigation Zoning for Salinity Mitigation by Introducing Offsets," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 23(10), pages 2085-2100, August.
    2. Khan, Shahbaz & Rana, Tariq & Hanjra, Munir A. & Zirilli, John, 2009. "Water markets and soil salinity nexus: Can minimum irrigation intensities address the issue?," Agricultural Water Management, Elsevier, vol. 96(3), pages 493-503, March.

    More about this item

    JEL classification:

    • Q24 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Land
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
    • C9 - Mathematical and Quantitative Methods - - Design of Experiments

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