Scandinavian Working Papers in Economics
Working Papers in Economics,
University of Gothenburg, Department of Economics
No 516: Should we tax or let firms trade emissons? An experimental analysis with policy implications for developing countries
Jessica Coria (), Clara Villegas-Palacio () and Juan Camilo Cárdenas ()
Additional contact information
Jessica Coria: Department of Economics, School of Business, Economics and Law, Göteborg University, Postal: Box 640, SE 40530 GÖTEBORG
Clara Villegas-Palacio: Facultad de Minas, Universidad Nacional de Colombia - Sede Medellin, Postal: Medellin, Colombia
Juan Camilo Cárdenas: Dept of Economics, Universidad de los Andes, Colombia
Abstract: In this paper we use laboratory experiments to test the theoretical predictions derived by Villegas-Palacio and Coria (2010) about the effects of the interaction between technology adoption and incomplete enforcement. They show that under Tradable Emissions Permits (TEPs), and in contrast to taxes, the fall in permit price produced by adoption of environmentally friendly technologies reduces the benefits of violating the environmental regulation at the margin and leads firms to improve their compliance behavior. Moreover, when TEPs are used, the regulator can speed up the diffusion of new technologies since the benefits from adopting the new technology increase with the enforcement stringency.
Our experimental results confirm these theoretical predictions. While the aggregate emissions do not statistically differ between the two policy instruments, the fraction of firms violating the regulation and the aggregate extent of violation are lower under TEPs than under emission taxes regardless of the monitoring probability. Hence, in contrast to previous studies, our results indicate that TEPs would appear to be a feasible policy alternative in weak regulatory contexts.
Keywords: laboratory experiments; emission taxes; auctioned tradable emissions permits; imperfect monitoring; technology adoption; developing countries
38 pages, November 22, 2011
Full text files
28008 HTML file
Questions (including download problems) about the papers in this series should be directed to Jessica Oscarsson ()
Report other problems with accessing this service to Sune Karlsson ().
RePEc:hhs:gunwpe:0516This page generated on 2024-11-14 18:33:27.