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Excessive banking preference in emissions trading

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  • Jae‐Do Song

Abstract

Firms tend to bank permits excessively, resulting in a lack of supply in the market and uncertainty regarding the ability to achieve the planned emissions target. This excessive banking preference is difficult to explain in terms of rational cost minimization for regulatory compliance. This study provides hypotheses to explain banking preference using cognitive bias concepts such as prospect theory, mental accounting, and regret aversion. The hypotheses are supported by three survey‐based experiments. This view of cognitive bias on banking preference justifies the use of active measures to prevent excessive banking, such as market makers and market restrictions.

Suggested Citation

  • Jae‐Do Song, 2023. "Excessive banking preference in emissions trading," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(1), pages 448-458, January.
    • Handle: RePEc:wly:mgtdec:v:44:y:2023:i:1:p:448-458
    DOI: 10.1002/mde.3692
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    References listed on IDEAS

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