Long-Run Implications of Alternative Emission Trading Plans: An Experiment with Robot Traders

Neil Buckley, Andrew Muller and Stuart Mestelman

Department of Economics Working Papers from McMaster University

Abstract: Two approaches to emmisions trading are cap-and-trade, in which an aggragate cap on emmisions is distributed in the form of permits, and baseline-and-credit, in which firms earn credits for emissions below their baselines. Theoretical considerations suggest the long-run equilibria of the two plans will differ if baselines are proportional to output, because a variable baseline is equivalent to an output subsidy. This paper reports on a laboratory environment designed to test this prediction. A computerized environment has been created in which subjects representing firms choose capacity and emission rates and participate in markets for permits or credits and for output. Demand for output is simulated. All decisions are tracked through a double-entry bookkeeping system. The timing of decisions was adjusted to avoid short-run instability. The paper reports the parameterization for an experiment with human traders and results of a simulated experiment using robots.

JEL-codes: C92 L50 Q58 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2003-04
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Citations: View citations in EconPapers (4)

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Working Paper: Long-Run Implications of Alternative Emission Trading Plans: An Experiment with Robot Traders (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:mcm:deptwp:2003-04

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