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An Experimental Analysis of Compliance in Dynamic Emissions Markets

  • 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)

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.

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File URL: http://courses.umass.edu/resec/workingpapers/documents/ResEcWorkingPaper2010-3.pdf
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Paper provided by University of Massachusetts Amherst, Department of Resource Economics in its series Working Papers with number 2010-3.

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Length: 44 pages
Date of creation: Aug 2010
Date of revision:
Handle: RePEc:dre:wpaper:2010-3
Contact details of provider: Web page: http://www.umass.edu/resec/

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  1. James Andreoni & Brian Erard & Jonathan Feinstein, 1998. "Tax Compliance," Journal of Economic Literature, American Economic Association, vol. 36(2), pages 818-860, June.
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  4. Timothy N. Cason & Lata Gangadharan, 2004. "Emissions Variability in Tradable Permit Markets with Imperfect Enforcement and Banking," Department of Economics - Working Papers Series 917, The University of Melbourne.
  5. John Stranlund & Christopher Costello & Carlos Chávez, 2005. "Enforcing Emissions Trading when Emissions Permits are Bankable," Journal of Regulatory Economics, Springer, vol. 28(2), pages 181-204, 09.
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  9. A. Denny Ellerman & Juan-Pablo Montero, 2007. "The Efficiency and Robustness of Allowance Banking in the U.S. Acid Rain Program," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 47-72.
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  11. Murphy, James J. & Stranlund, John K., 2007. "A laboratory investigation of compliance behavior under tradable emissions rights: Implications for targeted enforcement," Journal of Environmental Economics and Management, Elsevier, vol. 53(2), pages 196-212, March.
  12. Anderson, Christopher M. & Sutinen, Jon G., 2006. "The effect of initial lease periods on price discovery in laboratory tradable fishing allowance markets," Journal of Economic Behavior & Organization, Elsevier, vol. 61(2), pages 164-180, October.
  13. Stranlund, John K. & Dhanda, Kanwalroop Kathy, 1999. "Endogenous Monitoring and Enforcement of a Transferable Emissions Permit System," Journal of Environmental Economics and Management, Elsevier, vol. 38(3), pages 267-282, November.
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  15. Murphy, James J. & Stranlund, John K., 2006. "Direct and market effects of enforcing emissions trading programs: An experimental analysis," Journal of Economic Behavior & Organization, Elsevier, vol. 61(2), pages 217-233, October.
  16. Kling, Catherine L. & Rubin, Jonathan, 1997. "Bankable Permits for the Control of Environmental Pollution," Staff General Research Papers 1479, Iowa State University, Department of Economics.
  17. Stranlund, John K & Chavez, Carlos A, 2000. "Effective Enforcement of a Transferable Emissions Permit System with a Self-Reporting Requirement," Journal of Regulatory Economics, Springer, vol. 18(2), pages 113-31, September.
  18. John K. Stranlund & James J. Murphy & John M. Spraggon, 2013. "Imperfect enforcement of emissions trading and industry welfare: a laboratory investigation," Chapters, in: Handbook on Experimental Economics and the Environment, chapter 9, pages 265-288 Edward Elgar.
  19. Innes, Robert, 1999. "Remediation and self-reporting in optimal law enforcement," Journal of Public Economics, Elsevier, vol. 72(3), pages 379-393, June.
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  27. Torgler, Benno, 2002. " Speaking to Theorists and Searching for Facts: Tax Morale and Tax Compliance in Experiments," Journal of Economic Surveys, Wiley Blackwell, vol. 16(5), pages 657-83, December.
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  31. Rubin, Jonathan D., 1996. "A Model of Intertemporal Emission Trading, Banking, and Borrowing," Journal of Environmental Economics and Management, Elsevier, vol. 31(3), pages 269-286, November.
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