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An experimental economic analysis of emissions trading with shares and coupons in the presence of market uncertainty
Author(s) -
Godby Rob,
Mestelman Stuart,
Muller R. Andrew,
Welland Douglas
Publication year - 1998
Publication title -
environmetrics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.68
H-Index - 58
eISSN - 1099-095X
pISSN - 1180-4009
DOI - 10.1002/(sici)1099-095x(199801/02)9:1<67::aid-env287>3.0.co;2-h
Subject(s) - emissions trading , certainty , market share , economics , trading strategy , econometrics , business , financial economics , greenhouse gas , finance , mathematics , ecology , geometry , biology
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. Recent experiments suggest that banking will be particularly important when uncertainty about actual emissions requires trading in a reconciliation period after the quantity of emissions has been determined. This paper reports on the design of an experiment to measure the individual contributions of banking permits (which are called coupons) and trading entitlements (which are called shares) under alternative conditions of certainty and uncertainty. Banking, share trading and uncertainty conditions are introduced in a complete factorial design with three observations per cell. Preliminary analysis shows that banking and share trading both lead to greater efficiency. Banking is particularly important in reducing price instability when uncertainty is present. © 1998 John Wiley & Sons, Ltd.