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Tell the truth or not? The montero mechanism for emissions control at work

Till Requate, Eva Camacho-Cuena, Ch'ng Kean Siang and Israel Waichman ()

Journal of Environmental Economics and Management, 2019, vol. 95, issue C, 133-152

Abstract: We experimentally test the truth-telling mechanism proposed by Montero (2008) for eliciting firms' abatement costs. We compare this mechanism with two well-known alternative allocation mechanisms, free and costly allocation of permits at the Pigouvian price. Controlling for the number of firms and the firms' maximal emissions, we find that, in line with the theoretical predictions, firms over-report their maximal emissions under free allocation of permits and under-report these under costly allocation of permits. Under Montero's mechanism, by contrast, firms almost always report their maximal emissions truthfully. However, in terms of efficiency, the difference between Montero's mechanism and costly allocation disappears with industries including more than one firm.

Keywords: Mechanism design; Environmental policy; Permit trading; Auctions; Experiment (search for similar items in EconPapers)
JEL-codes: C92 D44 L51 Q28 (search for similar items in EconPapers)
Date: 2019
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Working Paper: Tell the truth or not? The Montero mechanism for emissions control at work (2019) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeeman:v:95:y:2019:i:c:p:133-152

DOI: 10.1016/j.jeem.2019.02.004

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Journal of Environmental Economics and Management is currently edited by M.A. Cole, A. Lange, D.J. Phaneuf, D. Popp, M.J. Roberts, M.D. Smith, C. Timmins, Q. Weninger and A.J. Yates

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