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An Experimental Analysis of Compliance in Dynamic Emissions Markets

Author

Listed:
  • John K. Stranlund

    () (Department of Resource Economics, University of Massachusetts Amherst)

  • James J. Murphy

    () (Department of Economics, University of Alaska Anchorage)

  • John M. Spraggon

    () (Department of Resource Economics, University of Massachusetts Amherst)

Abstract

Two important design elements for emission trading programs are whether and to what extent firms are able to bank emissions permits, and how these programs are to be enforced. In this paper we present results from laboratory emissions markets designed to investigate enforcement and compliance when these markets allow permit banking. Banking is motivated by a decrease in the aggregate permit supply in the middle of multi-period trading sessions. Consistent with theoretical insights, our experiments suggest that high permit violation penalties have little deterrence value in dynamic emissions markets, and that the main challenge of enforcing these programs is to motivate truthful self-reports of emissions.

Suggested Citation

  • John K. Stranlund & James J. Murphy & John M. Spraggon, 2011. "An Experimental Analysis of Compliance in Dynamic Emissions Markets," Working Papers 2011-01, University of Alaska Anchorage, Department of Economics.
  • Handle: RePEc:ala:wpaper:2011-01
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    References listed on IDEAS

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    Cited by:

    1. Lana Friesen & Lata Gangadharan, 2011. "Designing Self-Reporting Regimes to Encourage Truth Telling: An Experimental Study," Discussion Papers Series 426, School of Economics, University of Queensland, Australia.
    2. Stranlund, John K. & Murphy, James J. & Spraggon, John M., 2014. "Price controls and banking in emissions trading: An experimental evaluation," Journal of Environmental Economics and Management, Elsevier, vol. 68(1), pages 71-86.
    3. Jones, Luke R. & Vossler, Christian A., 2014. "Experimental tests of water quality trading markets," Journal of Environmental Economics and Management, Elsevier, pages 449-462.
    4. Stranlund, John K. & Moffitt, L. Joe, 2014. "Enforcement and price controls in emissions trading," Journal of Environmental Economics and Management, Elsevier, pages 20-38.
    5. David McEvoy & Todd Cherry & John Stranlund, 2015. "Endogenous Minimum Participation in International Environmental Agreements: An Experimental Analysis," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, pages 729-744.
    6. 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.
    7. Xiaozi Liu & Marko Lindroos & Leif Sandal, 2016. "Sharing a Fish Stock When Distribution and Harvest Costs are Density Dependent," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, pages 665-686.
    8. Luca Taschini & Marc Chesney & Mei Wang, 2014. "Experimental comparison between markets on dynamic permit trading and investment in irreversible abatement with and without non-regulated companies," Journal of Regulatory Economics, Springer, pages 23-50.
    9. Cason, Timothy N., 2010. "What Can Laboratory Experiments Teach Us About Emissions Permit Market Design?," Agricultural and Resource Economics Review, Cambridge University Press, pages 151-161.
    10. Dormady, Noah C., 2014. "Carbon auctions, energy markets & market power: An experimental analysis," Energy Economics, Elsevier, pages 468-482.
    11. David F. Perkis & Timothy N. Cason & Wallace E. Tyner, 2016. "An Experimental Investigation of Hard and Soft Price Ceilings in Emissions Permit Markets," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, pages 703-718.
    12. Dietz, Simon & Asheim, Geir B., 2012. "Climate policy under sustainable discounted utilitarianism," Journal of Environmental Economics and Management, Elsevier, pages 321-335.
    13. Kristian Ove R. Myrseth & Conny Wollbrant, 2011. "Naïve and capricious: Stumbling into the ring of self-control conflict," ESMT Research Working Papers ESMT-11-09, ESMT European School of Management and Technology.
    14. Friesen, Lana & Gangadharan, Lata, 2013. "Designing self-reporting regimes to encourage truth telling: An experimental study," Journal of Economic Behavior & Organization, Elsevier, pages 90-102.
    15. Todd Cherry & David McEvoy, 2013. "Enforcing Compliance with Environmental Agreements in the Absence of Strong Institutions: An Experimental Analysis," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, pages 63-77.

    More about this item

    Keywords

    Compliance; Enforcement; Emissions trading; Laboratory experiments; Permit markets; Permit banking;

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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