Imperfect Enforcement of Emissions Trading and Industry Welfare: A Laboratory Investigation

John Stranlund (stranlund@resecon.umass.edu), James Murphy, John Spraggon and John K. Stranlund
Additional contact information
John Stranlund: Department of Resource Economics, University of Massachusetts Amherst
Authors registered in the RePEc Author Service: John Kevin Stranlund (stranlund@resecon.umass.edu)

Working Papers from University of Alaska Anchorage, Department of Economics

Abstract: This paper uses laboratory experiments to investigate the performance of emission permit markets when compliance is imperfectly enforced. In particular we examine deviations in observed aggregate payoffs and expected penalties from those derived from a model of risk-neutral payoff-maximizing firms. We find that the experimental emissions markets were reasonably efficient at allocating individual emission control choices despite imperfect enforcement and significant noncompliance. However, violations and expected penalties were lower than predicted when these are predicted to be high, but were about the same as predicted values when these values were predicted to be low. Thus, although a standard model of compliance with emissions trading programs tends to predict significantly higher violations than we observe when subjects have strong incentives to violate their emissions permits, individual emissions control responsibilities are distributed among firms as predicted.

Keywords: experimental economics; laboratory experiments; emissions trading; enforcement; environmental economics (search for similar items in EconPapers)
JEL-codes: C90 C91 D62 H23 L51 Q58 (search for similar items in EconPapers)
Date: 2012-11
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Published in Handbook on Experimental Economics and the Environment. John A. List and Michael K. Price, editors. Northampton, MA: Edward Elgar.

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http://www.econpapers.uaa.alaska.edu/RePEC/ala/wpaper/ALA201206.pdf (application/pdf)

Related works:
Chapter: Imperfect enforcement of emissions trading and industry welfare: a laboratory investigation (2013)
Working Paper: Imperfect Enforcement of Emissions Trading and Industry Welfare: A Laboratory Investigation (2008)
Working Paper: Imperfect Enforcement of Emissions Trading and Industry Welfare: A Laboratory Investigation (2008)
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