Universität zu Köln

Grimm, Veronika and Ilieva, Lyuba (2013). An experiment on emissions trading: the effect of different allocation mechanisms. J. Regul. Econ., 44 (3). S. 308 - 339. DORDRECHT: SPRINGER. ISSN 1573-0468

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Abstract

In theory, efficiency and compliance levels induced by an emission trading system should not depend on the initial allocation mechanism for permits in the absence of transaction costs. In a laboratory experiment we investigate this prediction by comparing frequent and infrequent auctioning as well as two different grandfathering schemes under market rules that closely resemble those of the European Union Emission Trading System. Our experimental results suggest that, contrary to theoretical predictions, the initial allocation procedure has the potential to affect efficiency of the final permit allocation. While we do not identify an effect of the initial allocation procedure itself (auction vs. grandfathering), we observe higher final efficiency after infrequent auctioning of permits than for frequent auctioning. Surprisingly, for a grandfathering scheme that distributes permits proportional to expected needs the high initial efficiency is substantially reduced by secondary market trading. An analysis of behavioral patterns shows that permit prices and abatement levels are initially substantially higher if permits are allocated by auction and we also find more over-banking as compared to the grandfathering treatments. Treatment differences diminish in the course of the experiment.

Item Type:	Journal Article
Creators:	Creators Email ORCID ORCID Put Code Grimm, Veronika UNSPECIFIED UNSPECIFIED UNSPECIFIED Ilieva, Lyuba UNSPECIFIED UNSPECIFIED UNSPECIFIED
URN:	urn:nbn:de:hbz:38-471709
DOI:	10.1007/s11149-013-9222-y
Journal or Publication Title:	J. Regul. Econ.
Volume:	44
Number:	3
Page Range:	S. 308 - 339
Date:	2013
Publisher:	SPRINGER
Place of Publication:	DORDRECHT
ISSN:	1573-0468
Language:	English
Faculty:	Unspecified
Divisions:	Unspecified
Subjects:	no entry
Uncontrolled Keywords:	Keywords Language AUCTIONS; MARKETS; PERMITS; COSTS Multiple languages Economics Multiple languages
URI:	http://kups.ub.uni-koeln.de/id/eprint/47170