December 5, 2010

An Experimental Analysis of Compliance in Dynamic Emissions Markets

by John K. Stranlund, James J. Murphy and John M. Spraggon

- 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.

Stranlund, J.K., J.J. Murphy and J.M. Spraggon (2010). "An Experimental Analysis of Compliance in Dynamic Emissions Markets." University of Massachusetts Amherst Department of Resource Economics Working Paper No. 2010-3, Aug 2010.