McMaster Experimental Economics Laboratory R. Andrew Muller
R. Andrew Muller
Stuart Mestelman
McMaster University, Hamilton, Ontario Canada L8S 4M4
15 March, 1994
Cite as Muller, R. Andrew and Stuart Mestelman (1994) Emission Trading with Shares and Coupons: A Laboratory Experiment, The Energy Journal 15(2), 195-211. Copyright 1994 by the International Association of Energy Economists (IAEE). All rights reserved.
Increasing attention is being paid to emission trading programs for the control of air and water pollution. The United States EPA has implemented a tradable emission allowance program for sulphur oxides. The EPA auction has been investigated in the laboratory by Cronshaw and Brown Kruse and by Franciosi, Isaac, Pingry and Reynolds. A somewhat different proposal has been made for controlling nitrous oxides in southern Ontario. Trade would occur in coupons (emission permits) and shares (entitlements to coupons). This paper reports a laboratory investigation of the Canadian proposal in which the experimental design developed by Cronshaw and Brown Kruse was modified to reflect the proposed Canadian institution. The results indicate dispersed but relatively stable prices, higher efficiency than obtained in related experiments modelling the EPA plan, and little arbitrage between share and coupon prices. The results could be due to differences in the market institutions or the training of subjects.
This paper presents a test of the prediction that voluntary contributions to the provision of a public good will be completely crowded out by involuntary transfers for public good provision. The alternative model is that crowding out will be incomplete because participants in these environments, on average, care about giving. Several levels of transfers are considered. Incomplete crowding out is shown to occur when the transfer is small relative to the predicted equilibrium contribution under the null hypothesis, but becomes complete when the transfer increases. Support for warm-glow giving is weak