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Two important design elements for emission trading programs are whether and to what extent firms are able to bank emissions permits, and how these programs are to be enforced. In this paper we present results from laboratory emissions markets designed to investigate enforcement and compliance when these markets allow permit banking. Banking is motivated by a decrease in the aggregate permit supply in the middle of multi-period trading sessions. Consistent with theoretical insights, our experiments suggest that high permit violation penalties have little deterrence value in dynamic emissions markets, and that the main challenge of enforcing these programs is to motivate truthful self-reports of emissions.

Keywords: Compliance ; Enforcement ; Emissions trading ; Laboratory experiments ; Permitmarkets ; Permit banking

Subject(s): Environmental Economics and Policy

Public Economics

Issue Date: 2010-08

Publication Type: Working or Discussion Paper

PURL Identifier:

Total Pages: 44

JEL Codes: C91; L51; Q58

Series Statement: Working Paper


Record appears in: University of Massachusetts, Amherst > Department of Resource Economics > Working Paper Series

Autor: Stranlund, John K. ; Murphy, James J. ; Spraggon, John M.


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