An Experimental Investigation of Hard and Soft Price Ceilings in Emissions Permit Markets
David F. Perkis (),
Timothy Cason and
Wallace Tyner
Additional contact information
David F. Perkis: Purdue University
Environmental & Resource Economics, 2016, vol. 63, issue 4, No 2, 703-718
Abstract:
Abstract Tradable emissions permits have been implemented to control pollution levels in various markets and represent a major component of legislative efforts to control greenhouse gas emissions. Because permits are supplied for a fixed level of pollution, allowing the market for permits to determine the price, price control mechanisms may be needed to protect firms from price spikes caused by fluctuations in the demand for permits. We test permit markets in an experimental laboratory setting to determine the effectiveness of several price control mechanisms, with special attention on the soft price ceiling. We focus on a static setting similar to some of the earliest experimental work focused on price ceilings. Results indicate that both permit supply adjustments and price ceilings (hard ceilings) effectively limit elevated prices in this setting. By contrast, reserve auctions to implement soft ceilings do not consistently control prices, especially when a minimum reserve permit price is applied. Furthermore, the grandfathering of permits allows permit sellers to realize significant welfare gains at the expense of buyers under a soft ceiling policy. Our results thus highlight several advantages of hard ceilings for controlling short term price increases.
Keywords: Greenhouse gases; Hard and soft price ceilings; Laboratory economic experiments; Pollution and price controls; Reserve auction; Tradable emissions permit market (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)
Downloads: (external link)
http://link.springer.com/10.1007/s10640-014-9810-z Abstract (text/html)
Access to the full text of the articles in this series is restricted.
Related works:
Working Paper: An Experimental Investigation of Hard and Soft Price Ceilings in Emissions Permit Markets (2012) 
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:kap:enreec:v:63:y:2016:i:4:d:10.1007_s10640-014-9810-z
Ordering information: This journal article can be ordered from
http://www.springer. ... al/journal/10640/PS2
DOI: 10.1007/s10640-014-9810-z
Access Statistics for this article
Environmental & Resource Economics is currently edited by Ian J. Bateman
More articles in Environmental & Resource Economics from Springer, European Association of Environmental and Resource Economists Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().