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

  • Charlotte Duke
  • Lata Gangadharan

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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Article provided by The University of Melbourne, Melbourne Institute of Applied Economic and Social Research in its journal The Australian Economic Review.

Volume (Year): 38 (2005)
Issue (Month): 4 (December)
Pages: 459-469

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Handle: RePEc:bla:ausecr:v:38:y:2005:i:4:p:459-469
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  1. 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.
  2. Cason, T.N. & Gangadharan, L., 1997. "An Experimental Study of Electronic Bulletin Board Trading for Emission Permits," Department of Economics - Working Papers Series 592, The University of Melbourne.
  3. Stuart Mestelman & Andrew Muller, 1997. "What Have We Learned From Emissions Trading Experiments?," McMaster Experimental Economics Laboratory Publications 1997-03, McMaster University.
  4. Lata Gangadharan, 2000. "Transaction Costs in Pollution Markets: An Empirical Study," Land Economics, University of Wisconsin Press, vol. 76(4), pages 601-614.
  5. 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.
  6. Stavins Robert N., 1995. "Transaction Costs and Tradeable Permits," Journal of Environmental Economics and Management, Elsevier, vol. 29(2), pages 133-148, September.
  7. Kopczuk, Wojciech, 2003. "A note on optimal taxation in the presence of externalities," Economics Letters, Elsevier, vol. 80(1), pages 81-86, July.
  8. Hahn, Robert W, 1984. "Market Power and Transferable Property Rights," The Quarterly Journal of Economics, MIT Press, vol. 99(4), pages 753-65, November.
  9. 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.
  10. 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.
  11. Montgomery, W. David, 1972. "Markets in licenses and efficient pollution control programs," Journal of Economic Theory, Elsevier, vol. 5(3), pages 395-418, December.
  12. Stavins, Robert N., 1996. "Correlated Uncertainty and Policy Instrument Choice," Journal of Environmental Economics and Management, Elsevier, vol. 30(2), pages 218-232, March.
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