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An Experimental Analysis Of Compliance In Dynamic Emissions Markets, John K. Stranlund, James J. Murphy, John M. Spraggon
An Experimental Analysis Of Compliance In Dynamic Emissions Markets, John K. Stranlund, James J. Murphy, John M. Spraggon
John K. Stranlund
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 …
The Problem Of Maintaining Compliance Within Stable Coalitions: Experimental Evidence, David M. Mcevoy, James J. Murphy, John M. Spraggon, John K. Stranlund
The Problem Of Maintaining Compliance Within Stable Coalitions: Experimental Evidence, David M. Mcevoy, James J. Murphy, John M. Spraggon, John K. Stranlund
John K. Stranlund
This study examines the performance of stable cooperative coalitions that form to provide a public good when coalition members have the opportunity to not comply with their commitments. A stable coalition is one in which no member wishes to leave and no non-member wishes to join. To counteract the incentive to violate their commitments, coalition members fund a third-party enforcer. This leads to the theoretical conclusion that stable coalitions are larger (and provide more of a public good) when their members must finance enforcement relative to when compliance is ensured without the need for costly enforcement. However, our experiments reveal …
Imperfect Enforcement Of Emissions Trading And Industry Welfare: A Laboratory Investigation, John K. Stranlund, James J. Murphy, John M. Spraggon
Imperfect Enforcement Of Emissions Trading And Industry Welfare: A Laboratory Investigation, John K. Stranlund, James J. Murphy, John M. Spraggon
John K. Stranlund
This paper uses laboratory experiments to investigate the performance of emission permit markets when compliance is imperfectly enforced. In particular we examine deviations in observed aggregate payoffs and expected penalties from those derived from a model of risk-neutral payoff-maximizing firms. We find that the experimental emissions markets were reasonably efficient at allocating individual emission control choices despite imperfect enforcement and significant noncompliance. However, violations and expected penalties were lower than predicted when these are predicted to be high, but were about the same as predicted values when these values were predicted to be low. Thus, although a standard model of …
The Optimal Pricing Of Pollution When Enforcement Is Costly, John K. Stranlund, Carlos A. Chavez, Mauricio G. Villena
The Optimal Pricing Of Pollution When Enforcement Is Costly, John K. Stranlund, Carlos A. Chavez, Mauricio G. Villena
John K. Stranlund
We consider the pricing of a uniformly mixed pollutant when enforcement is costly with a model of optimal, possibly firm-specific, emissions taxes and their enforcement. We argue that optimality requires an enforcement strategy that induces full compliance by every firm. This holds whether or not regulators have complete information about firms’ abatement costs, the costs of monitoring them for compliance, or the costs of collecting penalties from noncompliant firms. Moreover, ignoring several unrealistic special cases, optimality requires discriminatory emissions taxes except when regulators are unable to observe firms’ abatement costs, the costs of monitoring individual firms, or any firm-specific characteristic …
The Regulatory Choice Of Noncompliance In Emissions Trading Programs, John K. Stranlund
The Regulatory Choice Of Noncompliance In Emissions Trading Programs, John K. Stranlund
John K. Stranlund
This paper addresses the following question: To achieve a fixed aggregate emissions target cost-effectively, should emissions trading programs be designed and implemented to achieve full compliance, or does allowing a certain amount of noncompliance reduce the costs of reaching the emissions target? The total costs of achieving the target consist of aggregate abatement costs, monitoring costs, and the expected costs of collecting penalties from noncompliant firms. Under common assumptions, I show that allowing noncompliance is cost-effective only if violations are enforced with an increasing marginal penalty. However, one can design a policy that induces full compliance with a constant marginal …
Enforcing 'Self-Enforcing' International Environmental Agreements, David M. Mcevoy, John K. Stranlund
Enforcing 'Self-Enforcing' International Environmental Agreements, David M. Mcevoy, John K. Stranlund
John K. Stranlund
Theoretical analyses of international environmental agreements (IEAs) have typically employed the concept of self-enforcing agreements to predict the number of parties to such an agreement. The term self-enforcing, however, is a bit misleading. The concept refers to the stability of cooperative agreements, not to enforcing these agreements once they are in place. Most analyses of IEAs simply ignore the issue of enforcing compliance. In this paper we analyze a static IEA game in which parties to an agreement finance an independent enforcement body with the power to monitor the parties’ compliance to the terms of an IEA and impose penalties …
Risk Aversion And Compliance In Markets For Pollution Control, John K. Stranlund
Risk Aversion And Compliance In Markets For Pollution Control, John K. Stranlund
John K. Stranlund
This paper examines the effects of risk aversion on compliance choices in markets for pollution control. A firm’s decision to be compliant or not is independent of its manager’s risk preference. However, noncompliant firms with risk averse managers will have lower violations than otherwise identical firms with risk neutral managers. The violations of noncompliant firms with risk averse managers are independent of differences in their benefits from emissions and their initial allocations of permits if and only if their managers’ utility functions exhibit constant absolute risk aversion. However, firm-level characteristics do impact violation choices when managers have coefficients of absolute …
An Investigation Of Voluntary Discovery And Disclosure Of Environmental Violations Using Laboratory Experiments, James J. Murphy, John K. Stranlund
An Investigation Of Voluntary Discovery And Disclosure Of Environmental Violations Using Laboratory Experiments, James J. Murphy, John K. Stranlund
John K. Stranlund
This paper uses laboratory experiments to test individual responses to policies that seek to encourage firms to voluntarily discover and disclose violations of environmental standards. We find that while it is possible to motivate a significant number of voluntary disclosures without adversely affecting environmental quality, this result is sensitive to both the fine for disclosed violations and the assumption that firms know their compliance status without cost. When firms have to expend resources to determine their compliance status, motivating a significant number of violation disclosures yields worse environmental quality. Finally, relative to conventional enforcement, disclosure polices will result in more …
A Laboratory Investigation Of Compliance Behavior Under Tradable Emissions Rights: Implications For Targeted Enforcement, John K. Stranlund, James J. Murphy
A Laboratory Investigation Of Compliance Behavior Under Tradable Emissions Rights: Implications For Targeted Enforcement, John K. Stranlund, James J. Murphy
John K. Stranlund
This paper uses laboratory experiments to test the theoretical observations that both the violations of competitive risk-neutral firms and the marginal effectiveness of increased enforcement across firms are independent of differences in their abatement costs and their initial allocations of permits. This conclusion has important implications for enforcing emissions trading programs because it suggests that regulators have no justification for targeting their enforcement effort based on firm-level characteristics. Consistent with the theory, we find that subjects’ violations were independent of parametric differences in their abatement costs. However, those subjects that were predicted to buy permits tended to have higher violation …