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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, 2010. "An Experimental Analysis of Compliance in Dynamic Emissions Markets," Working Papers 2010-3, University of Massachusetts Amherst, Department of Resource Economics.
    • Handle: RePEc:dre:wpaper:2010-3
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    compliance; enforcement; emissions trading; laboratory experiments; permit markets; permit banking;
    All these keywords.

    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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