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Experimental Evidence on the Properties of the California’s Cap and Trade Price Containment Reserve

  • Rachel Bodsky

    (Economic Science Institute, Chapman University)

  • Domenic Donato

    (Economic Science Institute, Chapman University)

  • Kevin James

    (Economic Science Institute, Chapman University)

  • David Porter

    (Economic Science Institute, Chapman University)

We report on a series of experiments to examine the properties of California’s Reserve Sale allocation mechanism to be implemented as part of the forthcoming cap and trade program and compare it with an alternative reserve sale mechanism. The proposed reserve sale mechanism allows covered entities to purchase allowances after the primary auction sale at fixed prices. If demand for units is greater the amount supplied in the reserve sale, a Proportional Rationing rule is used to distribute allowances based on submitted request for units. This rule is contrasted with to an alternative rule, Equal Rationing in which allowances are allocated one at a time until the quantity available is exhausted or the participants’ requests are fulfilled. We find Equal Rationing outperforms Proportional Rationing allocating units with higher efficiency at a lower cost to participants. Additionally, we sorted subjects by quiz score, which yielded a significant impact on performance, suggesting that subjects with a better understanding of the environment outperformed their counterparts.

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Paper provided by Chapman University, Economic Science Institute in its series Working Papers with number 12-12.

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Length: 63 pages
Date of creation: 2012
Date of revision:
Handle: RePEc:chu:wpaper:12-12
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  1. Murray, Brian C. & Newell, Richard G. & Pizer, William A., 2008. "Balancing Cost and Emissions Certainty: An Allowance Reserve for Cap-and-Trade," Discussion Papers dp-08-24, Resources For the Future.
  2. Giuseppe Lopomo & Leslie M. Marx & David McAdams & Brian Murray, 2011. "Carbon Allowance Auction Design: An Assessment of Options for the United States," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 5(1), pages 25-43, Winter.
  3. Noussair, Charles & Porter, David., 1990. "Allocating Priority with Auctions: An Experimental Analysis," Working Papers 747, California Institute of Technology, Division of the Humanities and Social Sciences.
  4. David McAdams & Giuseppe Lopomo & Leslie Marx & Brian Murray, . "Carbon Allowance Auction Design: An Assessment of Options for the U.S," Working Papers 10-64, Duke University, Department of Economics.
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