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Attitudes toward Risk and Compliance in Emission Permit Markets

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Listed:
  • Shaul Ben-David
  • David Brookshire
  • Stuart Burness
  • Michael McKee
  • Christian Schmidt

Abstract

We investigate the effects of uncertainty and concomitant risk aversion as they impact the incentive structure and subsequent operation of an emissions permit market modeled after the U.S. S02 market. Our theoretical results suggest that uncertainty dulls incentives to achieve cost savings through permit trading and inhibits efficient allocation of abatement efforts by firms. We test hypotheses in an experimental laboratory setting and find that the irreversibility of investment in abatement technology may present countervailing incentives for potential sellers of permits, resulting in a wait and see attitude toward adoption of efficient levels of abatement technology

Suggested Citation

  • Shaul Ben-David & David Brookshire & Stuart Burness & Michael McKee & Christian Schmidt, 2000. "Attitudes toward Risk and Compliance in Emission Permit Markets," Land Economics, University of Wisconsin Press, vol. 76(4), pages 590-600.
    • Handle: RePEc:uwp:landec:v:76:y:2000:i:4:p:590-600
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    References listed on IDEAS

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    JEL classification:

    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy

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