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Article

Dynamic Efficiency in Experimental Emissions Trading Markets with Investment Uncertainty

Citation
Cason TN & de Vries F (2019) Dynamic Efficiency in Experimental Emissions Trading Markets with Investment Uncertainty. Environmental and Resource Economics, 73 (1), pp. 1-31. https://doi.org/10.1007/s10640-018-0247-7

Abstract
This study employs a laboratory experiment to assess the performance of tradable permit markets on dynamic efficiency arising from cost-reducing investment. The permit allocation rule is the main treatment variable, with permits being fully auctioned or grandfathered. The experimental results show significant investment under both allocation rules in the presence of ex ante uncertainty over the actual investment outcome. However, auctioning permits generally provides stronger incentives to invest in R&D, leading to greater dynamic efficiency compared to grandfathering.

Keywords
Pollution permits; Allowance auction; Grandfathering; Investment incentives; Stochastic R&D; Laboratory experiments

Journal
Environmental and Resource Economics: Volume 73, Issue 1

StatusPublished
Author(s)Cason, Timothy N; de Vries, Frans
FundersEuropean Investment Bank and U.S. Environmental Protection Agency
Publication date31/05/2019
Publication date online16/04/2018
Date accepted by journal03/04/2018
URLhttp://hdl.handle.net/1893/27074
PublisherSpringer
ISSN0924-6460
eISSN1573-1502
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