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A Laboratory Investigation Of Compliance Behavior Under Tradable Emissions Rights: Implications For Targeted Enforcement, James J. Murphy, John Stranlund
A Laboratory Investigation Of Compliance Behavior Under Tradable Emissions Rights: Implications For Targeted Enforcement, James J. Murphy, John Stranlund
PERI Working Papers
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 …
Direct And Market Effects Of Enforcing Emissions Trading Programs: An Experimental Analysis, James J. Murphy, John K. Stranlund
Direct And Market Effects Of Enforcing Emissions Trading Programs: An Experimental Analysis, James J. Murphy, John K. Stranlund
PERI Working Papers
Since firms in an emissions trading program are linked together through a permit market, so too are their compliance choices. Thus, enforcement strategies for trading programs must account for not only the direct effects of enforcement on compliance and emissions decisions, but also the indirect effects that occur because changes in enforcement can induce changes in permit prices. This paper uses laboratory experiments to test for these direct and indirect market effects. Consistent with theoretical predictions, we find a direct effect of enforcement on individual violations, as well as a countervailing market effect through the permit price. Thus, the productivity …