The prospect that governments of one or a few large countries, or trading blocs, would engage in trading of international greenhouse gas emissions has led several policy analysts to express concerns that trade would be influenced by market power. The experiment reported here mimics a case where twelve countries, one of which is a large buyer (the mirror-image of a large seller), trade carbon emissions on an emissions exchange (a double-auction market) and where traders have quite accurate information about the underlying net demand. The findings deviate from those of the standard version of market power effects in that trade volumes and prices converge on competitive levels.
ABARE (1995). Global Climate Change: Economic Dimensions of a Cooperative International Policy Response beyond 2000, ABARE, Canberra.
2.
BaronR. (1999). Scooping paper on Market Power, OECD paper, Economics Directorate, OECD, Paris.
3.
BohmP. (1997). Joint Implementation as Emission Quota Trade: An Experiment Among Four Nordic Countries, Nord 1997:4, Nordic Council of Ministers, Copenhagen.
4.
BohmP. (forthcoming). “Experimental Evaluation of Policy Instruments” in Handbook of Environmental Economics (MälerK. G.VincentJ. eds.), Elsevier.
5.
BohmP.CarlénB. (1999). “Emission quota trade among the few: laboratory evidence of joint implementation among committed countries,” Journal of Resources and Energy Economics21: 43-66.
6.
BrownS. (1997). The Economic Impact of International Climate Change Policy, ABARE Research Report 97.4, Canberra.
7.
BurniauxJ.-M. (1999). How important is market power in Kyoto? An assessment based on the Green Model, OECD paper, Economics Directorate, OECD, Paris.
8.
CarlénB. (2003). Market Power in International Carbon Emissions Trading: A Laboratory Test, MIT Joint Program Report 96, MIT.
9.
Capros GeorgakopoulosP.T.KotsomitiS.FilippoupolitisA. (1997). Macroeconomic Implications of the “Kyoto” CO2 Target for the EU, Report to European Commission DG-XII under Climate Technology Strategy JOULE Project, National Technical University of Athens.
10.
DavisD. D.HoltC. A. (1993). Experimental Economics, Princeton University Press, Princeton, New Jersey.
11.
EasleyD.LedyardJ. O. (1993). “Theories of Price Formation and Exchange in Double Oral Auctions,” in The Double Auction Market - Institutions, Theories and Evidence, Santa Fe Institute.
12.
EU (1996). Quantified Emission Limitation and Reduction Objectives within Specified Time Frames, Ad Hoc Group on Climate Italian Presidency, Rome.
13.
FriedmanD. (1991). “A Simple Testable Model of Double Auction Markets,” Journal of Economic Behavior and Organization15: 47-70.
14.
FriedmanD. (1993). “The Double Auction Market Institution: A Survey,” in The Double Auction Market - Institutions, Theories and Evidence, Santa Fe Institute. Gjerdstad S. and J. Dickhaut (1995). Price Formation in Double Auctions, Discussion Paper No. 284, Department of Economics, University of Minnesota.
15.
GodbyR. W. (1999). “Market Power in Emission Permit Double Auctions,” Research in Experimental Economics7.
16.
HahnR. W. (1984). “Market Power and Transferable Property Rights,” Quarterly Journal of Economics99: 753-65.
17.
HertwigR.OrtmannA. (2001). Experimental Practices in Economics: A Methodological Challenge for Psychologists?, Behavioral and Brain Science 24: 383451.
18.
HizenY.SaijoT. (forthcoming). “Designing GHG Emissions Trading Institutions in the Kyoto Protocol: An Experimental Approach”, Environmental Modeling and Software.
19.
HoffmanE.McCabeK.ShachatK.SmithV. (1994). “Preferences, Property Rights and Anonymity in Bargaining Games,” Games and Economic Behavior7(3): 346-380.
20.
HoffmanE.McCabeK.SmithV. (2000). “The Impact of Exchange Context on the Activation of Equity in Ultimatum Games,” Experimental Economics3: 5-9.
21.
HoltC. A. (1995). “Industrial Organization: A Survey of Laboratory Research”, in The Handbook of Experimental Economics (KagelJ. H.RothA. E. eds.) Princeton University Press.
22.
HoltC. A.LanganL.VillamilA. (1986). “Market Power in Oral Double Auctions,” Economic Inquiry24: 107-23.
23.
IPCC (1996). Climate Change 1995 - Economic and Social Dimensions of Climate Change, Cambridge University Press.
24.
LedyardJ. O.Szakaly-MooreK. (1994). “Designing Organizations for Trading Pollution Rights,” Journal of Economic Behavior and Organization25: 167-96.
25.
LowensteinG. (1999). “Experimental Economics From the Vantage-Point of Behavioural Economics,” The Economic Journal109: F25-F34.
26.
MullerR. A.MestelmanS.SpraggonJ.GodbyR. W. (2002). “Can Auctions Control Market Power in Emissions Trading Markets?” The Journal of Environmental and Economic Management44: 70-92.
27.
PlottC. R. (1989). “An Updated Review of Industrial Organization: Applications of experimental methods,” in Handbook of Industrial Organization, vol. II (R. Schmalensee and R. D. Willig, eds.) Amsterdam: North Holland, 1109-76.
28.
PlottC. R. (1991). A Computerized Laboratory Market System and Research Support System for the Multiple Unit Double Auction, Social Science Working Paper No. 783, Caltech.
29.
SandorR. L.ColeJ. B.KellyE. M. (1994). “Model Rules and Regulations for a Global CO2 emissions Credit Market,” in Combating Global Warming, United Nations, New York.
30.
SiegelS.CastellanN. J.Jr (1989). Nonparametric Statistics for the Behavioral Sciences, McGraw-Hill International Editions.
31.
SmithV. L. (1981). “An Empirical Study of Decentralized Institutions of Monopoly Restraint,” in Essays in Contemporary Fields of Economics in Honor of E. T. Weiler (1914-1979) (J. Quirk and G. Horwich, Ed.) West Lafayette: Purdue University Press, 83-106.
32.
SmithV. L. (1982). “Microeconomic Systems as an Experimental Science,” American Economic Review72: 932-955.
33.
SmithV. L.WilliamsA. W. (1982). “The Effects of Rent Asymmetries in Experimental Auction Markets,” Journal of Economic Behavior and Organization3: 99-116.
34.
SmithV. L.WilliamsA. W. (1989). “The Boundaries of Competitive Price Theory: Convergence, Expectations, and Transaction Costs,” in Advances in Behavioral Economics, vol. 2, (Green L. and J. Kagel, Norwood, eds.), NJ, Ablex Publishing Co.
35.
SebergM. G. (2000). “Price Expectations and International Quota Trading: An Experimental Evaluation,” Journal of Environmental and Resource Economics17(3): 259-277.
36.
United Nations (1992). United Nations Framework of Climate Change Convention, Rio de Janeiro.
37.
United Nations (1997). Kyoto Protocol to the United Nations Framework Convention on Climate Change, Kyoto.
38.
WestskogH. (1996). “Market Power in a System of Tradable CO2 Quotas,” The Energy Journal17(3): 85-103.
