An Experimental Study of Electronic Bulletin Board Trading for Emission Permits
39 Pages Posted: 24 Oct 1997
Date Written: August 1997
This paper reports a laboratory experiment that studies several specific features of the Regional Clean Air Incentives Market (RECLAIM), a tradable emission permit program intended to lower the cost of meeting federal air quality standards in the Los Angeles area. It assesses the impact of some permit trading rules and alternative regulatory policies on market performance. The experiment focuses on a new centralized system of trading called the Electronic Bulletin Board Market. In this trading institution firms wanting to buy and sell permits can publicly post basic information about their requirements and proposed terms of trade, and potential trading partners can review this information online. Transactions are executed following bilateral negotiation. We compare the performance of this institution with the continuous double auction (CDA) trading institution. The environment implemented in the experiment includes specific trading restrictions implemented in RECLAIM due to the geography of the Los Angeles area. We find that the bulletin board market performs well and prices reflect market conditions as accurately as in the CDA. These results suggest that reliance on the electronic bulletin board market will not lead to inaccurate transaction prices.
JEL Classification: Q25, Q28
Suggested Citation: Suggested Citation