Opportunity cost for Free Allocations of Emissions Permits: An Experimental Analysis
2010 (English)In: Environmental and Resource Economics, ISSN 0924-6460, E-ISSN 1573-1502, Vol. 46, no 3, 331-336 p.Article in journal (Refereed) Published
An important feature of emissions trading is how emissions permits are allocated. The choice between an auction and free allocation should not influence firms' production choices nor consumer prices according to economic theory. However, many parties expect the method of allocation to affect product prices. This paper describes an experimental investigation into price determination under a cap-and-trade program with different allocation methods. Participants initially display diverse pricing strategies. However, given a simple economic setting in which earnings depend on behavior, we find that subjects learn to consider the opportunity cost of permits and overall behavior moves toward the economic prediction.
Place, publisher, year, edition, pages
2010. Vol. 46, no 3, 331-336 p.
Auction, Emissions allowances, Grandfathering
IdentifiersURN: urn:nbn:se:kth:diva-61570DOI: 10.1007/s10640-010-9343-zISI: 000278401900005OAI: oai:DiVA.org:kth-61570DiVA: diva2:479372
QC 201203022012-01-172012-01-172012-03-02Bibliographically approved