Working Papers, Swedish National Road & Transport Research Institute (VTI)
Pricing Strategies Under Emissions Trading: An Experimental Analysis
(), Markus Wråke, Erica C. Myers, Dallas Burtraw and Charles A. Holt
Abstract: An important feature in the design of an emissions trading
program is how emissions allowances are initially distributed into the
market. In a competitive market the choice between an auction and free
allocation should, according to economic theory, not have any influence on
firms’ production choices nor on consumer prices. However, many observers
expect the method of allocation to affect product prices. This paper
reports on the use of experimental methods to investigate behavior with
respect to how prices will be determined under a cap-and-trade program.
Participants initially display a variety of pricing strategies. However,
given a simple economic setting in which earnings depend on this behavior,
we find that subjects learn to consider the value of allowances and overall
behavior moves toward that predicted by economic theory.
Keywords: carbon dioxide; climate change; emissions trading; distributional effects; electricity; allocation; auctions; (follow links to similar papers)
JEL-Codes: C91; D44; (follow links to similar papers)
31 pages, January 13, 2009
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