Increasing attention is being paid to emission trading programs for the control of air and water pollution. The United States EPA has implemented a tradable emission allowance program for sulphur oxides. The EPA auction has been investigated in the laboratory by Cronshaw and Brown Kruse and by Franciosi, Isaac, Pingry and Reynolds. A somewhat different proposal has been made for controlling nitrous oxides in southern Ontario. Trade would occur in coupons (emission permits) and shares (entitlements to coupons). This paper reports a laboratory investigation of the Canadian proposal in which the experimental design developed by Cronshaw and Brown Kruse was modified to reflect the proposed Canadian institution. The results indicate dispersed but relatively stable prices, higher efficiency than obtained in related experiments modelling the EPA plan, and little arbitrage between share and coupon prices. The results could be due to differences in the market institutions or the training of subjects.
Barakat and Chamberlin in association with AER*X(20September1991). Study of Atmospheric Emission Trading Programs in the United States: Final Report. Canadian Council of Ministers of the Environment.
2.
Brown KruseJamieCronshawMark(1991). Permit Market Experiments Preliminary Report. University of Colorado, Department of Economics.
3.
Canada (1992). Economic Instruments for Environmental Protection: Discussion Paper. Minister of Supply and Services, Canada. Cat. No. En21-119/1992E.
4.
CarlsonDale (1993). An Analysis and Recommendation for the Terms of the RECLAIM Trading Credit. Report submitted to South Coast Air Quality Management District, California, Contract No. R-C93074.
5.
ChamberlinEdward H. (1948). “An Experimental Imperfect Market”. Journal of Political Economy 56: 95-108.
6.
CronshawMark B.Brown KruseJamie (1992). An Experimental Analysis of Emission Permits with Banking and the Clean Air Act Amendments of 1990. University of Colorado, Department of Economics, typescript. May26.
7.
CropperMaureen L.OatesWallace E. (1992). Environmental Economics: A Survey. Journal of Economic Literature 30(2):675-740.
8.
DalesJohn H. (1968). Pollution, Property and Prices. Toronto: University of Toronto Press.
9.
DavisDouglasHoltCharles (1993). Experimental Economics. Princeton, NJ: Princeton University Press.
10.
FranciosiR. (1993a). An Experimental Investigation of the Hahn-Noll Revenue Neutral Auction. Journal of Environmental Economics and Management 24: 1-24.
11.
FranciosiR. (1993b). Extension of Research into Marketable Emissions Permits. University of Arizona, Department of Economics, typescript.
12.
HahnRobert W. (1988. Promoting Efficiency and Equity through institutional design. Policy Sciences 21: 41-66.
13.
HahnRobert W. (1989). Economic Prescriptions for Environmental Problems: How the Patient Followed the Doctor's Orders. Journal of Economic Perspecitives 3(2): 95-114.
14.
HahnRobertNollRoger G. (1982). Designing a Market for Tradable Emission Permits in Reform of Environmental Regulation. Wesley Magat (ed.) Cambridge, MA: Baltinger.
15.
HahnRobertNollRoger G. (1990). Environmental Markets in the Year 2000. Journal of Risk and Uncertainty 3: 351-367.
16.
HahnRobertHesterGordon L. (1989) Where Did All the Markets Go? An Analysis of EPA's Emissions Trading Program. Yale Journal of Regulation 6: 109-53.
17.
HaleDouglas R.BjornstadDavid J. (1991). Marketable Permits for Controlling Sulphur Dioxide Emissions. Oak Ridge National Laboratory, Energy Division. Typescript.
18.
JoycePatrick (1983. Information and Behavior in Experimental Markets. Journal of Economic Behavior and Organization 4: 411-424.
19.
MontgomeryW.David (1972). “Markets in Licenses and Efficient Pollution Control Programs”. Journal of Economic Theory 5(3): 395-418.
20.
NicholsAlbert L. (1992. Emissions Trading Program for Stationary Sources of NOx in Ontario. Cambridge, MA: National Economic Research Associates.
21.
NicholsAlbert L.HarrisonDavid (1990a). Using Emissions Trading to Reduce Ground-Level Ozone in Canada: A Feasibility Analysis. Cambridge, MA: National Economic Research Associates, Inc.
22.
NicholsAlbert L.HarrisonDavid (1990b). The Impact on Ontario Hydro of Emissions Trading for Nitrogen Oxides: A Preliminary Analysis. Cambridge, MA: National Economic Research Associates, Inc.
23.
PlottCharles R. (1989). An Updated Review of Industrial Organization: Applications of Experimental Methods. Chapter 19 in R. Schmalensee and R.D. Willig (eds) Handbook of Industrial Organization Vol II. Elsevier Science Publishers.
24.
PlottCharles R. (1994) Market Architectures, Institutional Landscapes and Testbed Experiments. Economic Theory 4 (1): 2-10.
25.
RothAlvin E. (1988). Laboratory Experimentation in Economics: A Methodological Overview. Economic Journal 98 (393): 974-1031.
26.
TietenbergThomas (1980) Transferable Discharge Permits and the Control of Stationary Source Air Pollution. Land Economics 5: 391-416.
27.
TietenbergThomas (1985) Emissions Trading: An Exercise in Reforming Pollution Policy. Washington, D.C.:Resources for the Future
28.
TietenbergThomas (1993). Environmental and Natural Resource Economics 3rd ed. Harper-Collins.
29.
United States, Environmental Protection Agency (40 CFR) Part 73, (1991) “Auctions, Direct Sales, and Independent Power Producers Written Guarantee Regulations and Request for Delegation of Proposals to Administer the Auctions and Direct Sale; Rule and Notice,” Federal Register, pp. 65592-65609 (December17).
30.
United States, Environmental Protection Agency (1993) “EPA and Chicago Board of Trade Announce Results of First Acid Rain Allowance Auctions”. Press Release, 30 March.
