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Pricing Strategies Under Emissions Trading: An Experimental Analysis

Svante Mandell (), Markus Wråke, Erica Myers (), Dallas Burtraw and Charles Holt ()
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Markus Wråke: IVL, http://www.ivl.se

No 2009:1, Working Papers from Swedish National Road & Transport Research Institute (VTI)

Abstract: An important feature in the design of an emissions trading program is how emissions allowances are initially distributed into the market. In a competitive market the choice between an auction and free allocation should, according to economic theory, not have any influence on firms’ production choices nor on consumer prices. However, many observers expect the method of allocation to affect product prices. This paper reports on the use of experimental methods to investigate behavior with respect to how prices will be determined under a cap-and-trade program. Participants initially display a variety of pricing strategies. However, given a simple economic setting in which earnings depend on this behavior, we find that subjects learn to consider the value of allowances and overall behavior moves toward that predicted by economic theory.

Keywords: carbon dioxide; climate change; emissions trading; distributional effects; electricity; allocation; auctions (search for similar items in EconPapers)
JEL-codes: C91 D44 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ene, nep-env and nep-exp
Date: 2009-01-13
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