We test the null hypothesis that involuntary transfers for the provision of a public good will completely crowd out voluntary transfers against the warm-glow hypothesis that crowding-out will be incomplete because individuals care about giving. Our design differs from the related design used by Andreoni in considering two levels of the involuntary transfer and a wider range of contribution possibilities, and in mixing groups every period instead of every four periods. We analyse the data with careful attention to boundary effects. We retain the null hypothesis of complete crowding-out in two of three pairwise comparisions, but reject it in favour of incomplete crowding-out in the comparison most closely akin to Andreoni's design. Thus we confirm the existence of incomplete crowding-out in some environments, but suggest that the warm-glow hypothesis is inadequate in explaining it.
Two important decisions in designing markets for tradable emissions permits are whether to allow banking and whether to allow trading in entitlements to future permits Banking is predicted to reduce price instability when firms trade in a reconciliation market after the quantity of emissions has been determined Tradable entitlements ("shares") are a common feature in proposals for emissions trading in Canada We conduct a laboratory experiment to I INTRODUCTIONTwo important decisions in designing markets for tradable emissions permits are whether to allow banking and whether to allow trading in entitlements to future permits Banking refers to the ability to carry unused emission permits forward from one compliance period to the next It is sometimes considered undesirable since it reduces the regulators' control over the temporal distribution of emissions Banking might lead to a concentration of emissions in one time penod, thus increasing pollution damages if the damage function is convex Banking is particularly desirable when firms cannot control emissions precisely during a compliance penod In this case, they may arrive at the end of the compliance period with a surplus or deficit of coupons An emission trading plan can provide for a reconciliation market in which firms clear these surpluses or deficits If the entire market is long, however, excess supply of permits in the reconciliation penod may lead to extremely low prices for permits unless the permits can be banked for later use Alternatively, excess demand for permits may dnve prices very high unless it can be met out of a stock of banked coupons Carlson el al provide experimental evidence supporting this proposition Explicit trading in entitlements to future permits is a feature of several emission trading plans under discussion in Canada These proposals distinguish between coupons and shares A coupon is the permission to discharge a unit quantity of waste (it thus corresponds to the permit of economic theory or the allowance of the U S EPA Sulphur Dioxide market)A share is an entitlement to a specified fraction of coupons to be issued in future periodsFor example, a firm holding 10% of the shares in a emissions trading market would receive 10% of the coupons issued in any year, even if the absolute number of coupons is variableIn a world of complete and perfect contingent future markets in coupons, shares would be redundant But m the practical world of environmental regulation, shares may have some advantages in allowing more secure long term planning for firms acquiring or selling coupons and in providing an explicit method for allocating any future variation in aggregate allowable emissions Emission plans under discussion in Canada typically provide both for trading in shares and for banking coupons, while plans implemented in the United States tend not to provide a formal mechanism for trading entitlements and have, in al least one case, restricted banking 'Neither design feature has been fully investigated in the laboratory Previous experim...
Policymakers are concerned with market power being exploited by dominant firms in emission permit markets. Two types of market power may emerge: simple and exclusionary manipulation. Simple manipulation should result in reduced pollution-control cost relative to command-and-control regulation. Exclusionary manipulation may result in increased cost. The paper reports results of an economic experiment to determine whether (i) such opportunities are successfully exploited when a dominant firm has the opportunity to do so, and (ii) the resulting outcomes are serious enough to merit consideration by regulators. Market power outcomes emerge and market efficiency is far below predicted levels.
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