EconPapers    
Economics at your fingertips  
 

The effects of seemingly nonbinding price floors: An experimental analysis

Stephen Salant, William Shobe and Neslihan Uler

European Economic Review, 2023, vol. 159, issue C

Abstract: Price floors are common policies in markets for storable goods such as commodities, bankable emissions permits, and currencies. Hard price floors are implemented as unlimited government buybacks and prevent the price from falling below the floor; soft floors, whether implemented as limited buybacks or as reserve prices in emission permit auctions, allow the market price to fall below the floor. We specify and then test in the laboratory a two-period model with the same properties as our infinite-horizon model, Salant et al. (2022). Theory predicts that asset prices will respond to price floors even in a set of circumstances where the floor seems nonbinding. Most of our experimental findings are consistent with theoretical predictions: a seemingly nonbinding floor can cause the price and carryover to jump up, the jump is higher with a hard floor than a soft one, and when the floor is so low that the theory predicts no effect, none is observed. In contrast to theoretical predictions, however, the soft floor fails to increase the carryover and market price in our experiment.

Keywords: Price floors; Emissions markets; Agricultural price supports; Commodity markets; Laboratory experiments (search for similar items in EconPapers)
JEL-codes: C6 C92 D0 Q1 Q5 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0014292123002118
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:159:y:2023:i:c:s0014292123002118

DOI: 10.1016/j.euroecorev.2023.104583

Access Statistics for this article

European Economic Review is currently edited by T.S. Eicher, A. Imrohoroglu, E. Leeper, J. Oechssler and M. Pesendorfer

More articles in European Economic Review from Elsevier
Bibliographic data for series maintained by Catherine Liu ().

 
Page updated 2025-04-07
Handle: RePEc:eee:eecrev:v:159:y:2023:i:c:s0014292123002118