The political economy of certificates for land use in Germany: Experimental evidence

Kilian Bizer, Ralph Henger, Lukas Meub and Till Proeger

No 225, University of Göttingen Working Papers in Economics from University of Goettingen, Department of Economics

Abstract: Certificate trading schemes have been discussed as a cost-efficient means of reducing land use in Germany by capping and reallocating permissions to conduct building projects. However, in contrast to the established cap & trade systems for emissions, reputation-seeking politicians would be in charge of buying and trading certificates - an aspect not considered to date. We thus present a laboratory experiment that captures politician´s incentives connected to electoral cycles in a cap & trade scheme for land use, whereby tradable certificates are auctioned and grandfathered in equal shares. We find the cap & trade system to be efficient at large, yet there are several politically relevant distortions that are aggravated by self-serving incentives. Prices show high volatility, initially by far exceed fair values and are substantially biased by the endowment effect. Further, the timing and location of land use projects and the heterogeneity in income across municipalities are sensitive to the specifics of the system and politicians´ interests. We thus identify potential problems to a cap & trade system for land use that could substantially reduce both its assumed superior efficiency and its political feasibility.

Keywords: economic experiment; land use; municipal actors; political business cycle; tradable certificates (search for similar items in EconPapers)
JEL-codes: C91 Q58 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-agr, nep-exp and nep-pol
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:cegedp:225

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