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Emission Trading with Shares and Coupons: A Laboratory Experiment

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  • R. Andrew Muller
  • Stuart Mestelman

Abstract

Increasing attention is being paid to emission trading programs for the control of air and water pollution. The United States EPA has implemented a tradable emission allowance program for sulphur oxides. The EPA auction has been investigated in the laboratory by Cronshaw and Brown Kruse and by Franciosi, Isaac, Pingry and Reynolds. A somewhat different proposal has been made for controlling nitrous oxides in southern Ontario. Trade would occur in coupons (emission permits) and shares (entitlements to coupons). This paper reports a laboratory investigation of the Canadian proposal in which the experimental design developed by Cronshaw and Brown Kruse was modified to reflect the proposed Canadian institution. The results indicate dispersed but relatively stable prices, higher efficiency than obtained in related experiments modelling the EPA plan, and little arbitrage between share and coupon prices. The results could be due to differences in the market institutions or the training of subjects.

Suggested Citation

  • R. Andrew Muller & Stuart Mestelman, 1994. "Emission Trading with Shares and Coupons: A Laboratory Experiment," The Energy Journal, , vol. 15(2), pages 185-211, April.
    • Handle: RePEc:sae:enejou:v:15:y:1994:i:2:p:185-211
    DOI: 10.5547/ISSN0195-6574-EJ-Vol15-No2-10
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    2. Kai-Uwe Kuhn & Neslihan Uler, 2019. "Behavioral sources of the demand for carbon offsets: an experimental study," Experimental Economics, Springer;Economic Science Association, vol. 22(3), pages 676-704, September.
    3. Bohm, Peter, 2003. "Experimental evaluations of policy instruments," Handbook of Environmental Economics, in: K. G. Mäler & J. R. Vincent (ed.), Handbook of Environmental Economics, edition 1, volume 1, chapter 10, pages 437-460, Elsevier.
    4. Jason F. Shogren, 2002. "Micromotives in Global Environmental Policy," Interfaces, INFORMS, vol. 32(5), pages 47-61, October.
    5. 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.
    6. John Tisdell & Daniel Clowes, 2008. "The problem of uncertain nonpoint pollution credit production in point and nonpoint emission trading markets," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 9(1), pages 25-42, March.
    7. Ben-David, Shaul & Brookshire, David S. & Burness, Stuart & McKee, Michael & Schmidt, Christian, 1999. "Heterogeneity, Irreversible Production Choices, and Efficiency in Emission Permit Markets," Journal of Environmental Economics and Management, Elsevier, vol. 38(2), pages 176-194, September.
    8. Frota Neto, João Quariguasi & Bloemhof, Jacqueline & Corbett, Charles, 2016. "Market prices of remanufactured, used and new items: Evidence from eBay," International Journal of Production Economics, Elsevier, vol. 171(P3), pages 371-380.
    9. Bohm, Peter & Carlén, Björn, 1998. "Emission Quota Trade among the Few: Laboratory Evidence of Joint Implementation among Committed Countries The Complete Version," Research Papers in Economics 1997:5, Stockholm University, Department of Economics.
    10. Bohm, Peter & Carlen, Bjorn, 1999. "Emission quota trade among the few: laboratory evidence of joint implementation among committed countries," Resource and Energy Economics, Elsevier, vol. 21(1), pages 43-66, January.
    11. John Tisdell & Daniel Clowes, 2008. "The problem of uncertain nonpoint pollution credit production in point and nonpoint emission trading markets," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 9(1), pages 25-42, March.
    12. Godby, Robert W. & Mestelman, Stuart & Muller, R. Andrew & Welland, J. Douglas, 1997. "Emissions Trading with Shares and Coupons when Control over Discharges Is Uncertain," Journal of Environmental Economics and Management, Elsevier, vol. 32(3), pages 359-381, March.
    13. Shaul Ben-David & David Brookshire & Stuart Burness & Michael McKee & Christian Schmidt, 2000. "Attitudes toward Risk and Compliance in Emission Permit Markets," Land Economics, University of Wisconsin Press, vol. 76(4), pages 590-600.
    14. Tisdell, John G. & Grainger, Corinne, 2008. "An Experimental Economic Analysis of Carbon Trading Options for Australia," 2008 Conference, August 28-29, 2008, Nelson, New Zealand 96661, New Zealand Agricultural and Resource Economics Society.

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    • F0 - International Economics - - General

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