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Buyer Liability and Voluntary Inspections in International Greenhouse Gas Emissions Trading: A Laboratory Study

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  • Timothy Cason

Abstract

This paper reports a preliminary laboratoryexperiment in which traders make investments toincrease the reliability of tradableinstruments that represent greenhouse gasemissions allowances. In one half of thesessions these investments are unobservable,while in the other half traders can invitecostless and accurate inspections that makereliability investments public. We implement abuyer liability rule, so that if emissionsreductions are unreliable (i.e., sellersdefault), the buyer of the allowances cannotredeem them to cover emissions. We find thatallowing inspections significantly increasesthe reliability investment rate and overallefficiency. Prices of uninspected allowancesusually trade at a substantial discount due tothe buyer liability rule, which provides astrong market incentive for sellers to investin reliability. Copyright Kluwer Academic Publishers 2003

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  • Timothy Cason, 2003. "Buyer Liability and Voluntary Inspections in International Greenhouse Gas Emissions Trading: A Laboratory Study," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 25(1), pages 101-127, May.
    • Handle: RePEc:kap:enreec:v:25:y:2003:i:1:p:101-127
    DOI: 10.1023/A:1023665517698
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    References listed on IDEAS

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    Cited by:

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    2. Daoyan Guo & Hong Chen & Ruyin Long, 2019. "What Role Should Government Play in the Personal Carbon Trading Market: Motivator or Punisher?," IJERPH, MDPI, vol. 16(11), pages 1-16, May.
    3. Cason, Timothy N., 2010. "What Can Laboratory Experiments Teach Us About Emissions Permit Market Design?," Agricultural and Resource Economics Review, Cambridge University Press, vol. 39(2), pages 151-161, April.
    4. Heidari, Negin & Pearce, Joshua M., 2016. "A review of greenhouse gas emission liabilities as the value of renewable energy for mitigating lawsuits for climate change related damages," Renewable and Sustainable Energy Reviews, Elsevier, vol. 55(C), pages 899-908.
    5. Hasson, Reviva & Löfgren, Åsa & Visser, Martine, 2010. "Climate change in a public goods game: Investment decision in mitigation versus adaptation," Ecological Economics, Elsevier, vol. 70(2), pages 331-338, December.
    6. Ying Sun & Fengqin Liu & Huaping Sun, 2022. "Does Standardization Improve Carbon Emission Efficiency as Soft Infrastructure? Evidence from China," Energies, MDPI, vol. 15(6), pages 1-17, March.
    7. Daoyan Guo & Hong Chen & Ruyin Long, 2019. "How to involve individuals in personal carbon trading? A game model taking into account the heterogeneous emotions of government and individuals," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 95(1), pages 419-435, January.
    8. Noussair, C.N. & van Soest, D.P., 2014. "Economic Experiments and Environmental Policy : A Review," Discussion Paper 2014-001, Tilburg University, Center for Economic Research.

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