Tell the truth or not? The Montero mechanism for emissions control at work
Kean Siang Ch'ng and
Israel Waichman ()
Authors registered in the RePEc Author Service: Eva Camacho Cuena ()
No 2018-02, Economics Working Papers from Christian-Albrechts-University of Kiel, Department of Economics
We experimentally test the truth-telling mechanism proposed by Montero (2008) for eliciting firms' abatement costs. We compare this mechanism with two well-known alternative allocation mechanisms, grandfathering and pure auctioning. We conducted 27 treatments with a total of 623 participants, controlling for the allocation mechanism, the number of firms, and the true maximal emission levels. We find that, in line with the theoretical predictions, firms over-report their maximal emissions under grandfathering and under-report them under pure auctioning, while under Montero's mechanism firms almost always report their maximal emissions truthfully. However, in terms of efficiency, the difference between Montero's mechanism and pure auctioning disappears when there is more than one firm in the market.
Keywords: mechanism design; environmental policy; permit trading; auctions; experiment (search for similar items in EconPapers)
JEL-codes: C92 D44 L51 Q28 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-des, nep-ene, nep-env and nep-exp
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:cauewp:201802
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