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Long-Run Implications of Alternative Emission Trading Plans: An Experiment with Robot Traders

Author

Listed:
  • Neil Buckley
  • R. Andrew Muller
  • Stuart Mestelman

Abstract

Two approaches to emmisions trading are cap-and-trade, in which an aggragate cap on emmisions is distributed in the form of permits, and baseline-and-credit, in which firms earn credits for emissions below their baselines. Theoretical considerations suggest the long-run equilibria of the two plans will differ if baselines are proportional to output, because a variable baseline is equivalent to an output subsidy. This paper reports on a laboratory environment designed to test this prediction. A computerized environment has been created in which subjects representing firms choose capacity and emission rates and participate in markets for permits or credits and for output. Demand for output is simulated. All decisions are tracked through a double-entry bookkeeping system. The timing of decisions was adjusted to avoid short-run instability. The paper reports the parameterization for an experiment with human traders and results of a simulated experiment using robots.

Suggested Citation

  • Neil Buckley & R. Andrew Muller & Stuart Mestelman, 2003. "Long-Run Implications of Alternative Emission Trading Plans: An Experiment with Robot Traders," Department of Economics Working Papers 2003-04, McMaster University.
    • Handle: RePEc:mcm:deptwp:2003-04
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    File URL: http://socserv.mcmaster.ca/econ/rsrch/papers/archive/2003-04.pdf
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    Cited by:

    1. Neil J. Buckley & Stuart Mestelman & R. Andrew Muller, 2006. "Implications Of Alternative Emission Trading Plans: Experimental Evidence," Pacific Economic Review, Wiley Blackwell, vol. 11(2), pages 149-166, June.
    2. Neil J. Buckley, 2004. "Short-Run Implications of Cap-and-Trade versus Baseline-and-Credit Emission Trading Plans: Experimental Evidence," McMaster Experimental Economics Laboratory Publications 2004-03, McMaster University.
    3. Neil J. Buckley & R. Andrew Muller & Stuart Mestelman, 2004. "Cap-and-Trade versus Baseline-and-Credit Emission Trading Plans: Experimental Evidence Under Variable Output Capacity," McMaster Experimental Economics Laboratory Publications 2004-06, McMaster University.
    4. Neil J. Buckley & R. Andrew Muller & Stuart Mestelman, 2005. "Baseline-and-Credit Emission Permit Trading: Experimental Evidence Under Variable Output Capacity," Department of Economics Working Papers 2005-03, McMaster University.

    More about this item

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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