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Bringing biophysical models into the economic laboratory: An experimental analysis of sediment trading in Australia

  • Tisdell, John

Experimental economics has emerged and matured as a formal method for questioning and stress testing economic theory and assumptions concerning individual behavior. More recently, experimental methods have been used successfully in an economic laboratory to test alternative environmental policy options. The data underpinning these experiments is often stylized or hypothetical in nature. Ecologists and experimental economics have much to gain by exploring ways to underpin economic experiments with data generated from biophysical models in terms of external validity and salient features of the issue at hand. The study makes a contribution by demonstrating how underpinning experiments with regionally modeled biophysical data may give insights which would not necessarily arise from stylized data. In this study sediment data generated from an Environmental Management Support System (EMSS), a software model of sediment runoff in catchments was used to populate the player decision space. The study investigated the relative performance of four different instruments (closed first and second price call tenders, cap and trade and command and control regulation) as mechanisms for promoting riparian management and reducing total suspended solids exiting a catchment and, as traditional auction structures, logical choices for exploring the consequences of incorporating modeled biophysical data. The study found unexpected insights into player behavior which may not have been foreseen from stylized data, suggesting that further exploration of integrated biophysical economic experiments is warranted.

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Article provided by Elsevier in its journal Ecological Economics.

Volume (Year): 60 (2007)
Issue (Month): 3 (January)
Pages: 584-595

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Handle: RePEc:eee:ecolec:v:60:y:2007:i:3:p:584-595
Contact details of provider: Web page: http://www.elsevier.com/locate/ecolecon

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  1. Shortle, James S & Horan, Richard D, 2001. " The Economics of Nonprofit Pollution Control," Journal of Economic Surveys, Wiley Blackwell, vol. 15(3), pages 255-89, July.
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  8. Cason, Timothy N. & Gangadharan, Lata & Duke, Charlotte, 2003. "Market Power in Tradable Emission Markets: A Laboratory Testbed for Emission Trading in Port Phillip Bay, Victoria," 2003 Conference (47th), February 12-14, 2003, Fremantle, Australia 57841, Australian Agricultural and Resource Economics Society.
  9. Smith, Vernon L, et al, 1982. "Competitive Market Institutions: Double Auctions vs. Sealed Bid-Offer Auctions," American Economic Review, American Economic Association, vol. 72(1), pages 58-77, March.
  10. Reimund Schwarze & Peter Zapfel, 2000. "Sulfur Allowance Trading and the Regional Clean Air Incentives Market: A Comparative Design Analysis of two Major Cap-and-Trade Permit Programs?," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 17(3), pages 279-298, November.
  11. Richard Schmalensee & Paul L. Joskow & A. Denny Ellerman & Juan Pablo Montero & Elizabeth M. Bailey, 1998. "An Interim Evaluation of Sulfur Dioxide Emissions Trading," Journal of Economic Perspectives, American Economic Association, vol. 12(3), pages 53-68, Summer.
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