An Experimental Analysis of Compliance in Dynamic Emissions Markets

44 Pages Posted: 21 Sep 2010

See all articles by John Stranlund

John Stranlund

University of Massachusetts at Amherst - College of Natural Resources & the Environment - Department of Resource Economics

James J. Murphy

University of Alaska Anchorage

John M. Spraggon

University of Massachusetts at Amherst - College of Natural Resources & the Environment - Department of Resource Economics

Date Written: August 20, 2010

Abstract

Two important design elements for emission trading programs are whether and to what extent firms are able to bank emissions permits, and how these programs are to be enforced. In this paper we present results from laboratory emissions markets designed to investigate enforcement and compliance when these markets allow permit banking. Banking is motivated by a decrease in the aggregate permit supply in the middle of multi-period trading sessions. Consistent with theoretical insights, our experiments suggest that high permit violation penalties have little deterrence value in dynamic emissions markets, and that the main challenge of enforcing these programs is to motivate truthful self-reports of emissions.

Keywords: Compliance, Enforcement, Emissions trading, Laboratory experiments, Permit

JEL Classification: C91, L51, Q58

Suggested Citation

Stranlund, John and Murphy, James J. and Spraggon, John M., An Experimental Analysis of Compliance in Dynamic Emissions Markets (August 20, 2010). Available at SSRN: https://ssrn.com/abstract=1679831 or http://dx.doi.org/10.2139/ssrn.1679831

John Stranlund (Contact Author)

University of Massachusetts at Amherst - College of Natural Resources & the Environment - Department of Resource Economics ( email )

Stockbridge Hall
80 Campus Center Way
Amherst, MA 01003-9246
United States
413-545-6328 (Phone)

James J. Murphy

University of Alaska Anchorage ( email )

Anchorage, AK
United States
907-786-1936 (Phone)

HOME PAGE: http://faculty.cbpp.uaa.alaska.edu/jmurphy/

John M. Spraggon

University of Massachusetts at Amherst - College of Natural Resources & the Environment - Department of Resource Economics ( email )

Stockbridge Hall
80 Campus Center Way
Amherst, MA 01003-9246
United States

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