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Experimental Evidence on the Properties of the California’s Cap and Trade Price Containment Reserve

Rachel Bodsky, Domenic Donato, Kevin James and David Porter
Additional contact information
Rachel Bodsky: Economic Science Institute, Chapman University
Domenic Donato: Economic Science Institute, Chapman University
Kevin James: Economic Science Institute, Chapman University

Working Papers from Chapman University, Economic Science Institute

Abstract: We report on a series of experiments to examine the properties of California’s Reserve Sale allocation mechanism to be implemented as part of the forthcoming cap and trade program and compare it with an alternative reserve sale mechanism. The proposed reserve sale mechanism allows covered entities to purchase allowances after the primary auction sale at fixed prices. If demand for units is greater the amount supplied in the reserve sale, a Proportional Rationing rule is used to distribute allowances based on submitted request for units. This rule is contrasted with to an alternative rule, Equal Rationing in which allowances are allocated one at a time until the quantity available is exhausted or the participants’ requests are fulfilled. We find Equal Rationing outperforms Proportional Rationing allocating units with higher efficiency at a lower cost to participants. Additionally, we sorted subjects by quiz score, which yielded a significant impact on performance, suggesting that subjects with a better understanding of the environment outperformed their counterparts.

Pages: 63 pages
Date: 2012
New Economics Papers: this item is included in nep-ene and nep-exp
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