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Jürges, Hendrik

The B.E. Journal of Economic Analysis & Policy

Editor-in-Chief: Ludwig, Sandra / Schmitz, Hendrik

Ed. by Barigozzi, Francesca / Brunner, Johann / Fleck, Robert / Mastrobuoni, Giovanni / Mendola, Mariapia / Requate, Till / de Vries, Frans / Wenzel, Tobias


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1935-1682
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Volume 16, Issue 2

Issues

Volume 6 (2006)

Volume 4 (2004)

Volume 2 (2002)

Volume 1 (2001)

The Regulatory Choice of Noncompliance in the Lab: Effect on Quantities, Prices, and Implications for the Design of a Cost-Effective Policy

Marcelo Caffera
  • Corresponding author
  • Departamento de Economía, Universidad de Montevideo, Prudencio de Pena 2544, Montevideo 11600, Uruguay
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/ Carlos Chávez
  • Departamento de Economía, Research Nucleus in Environmental and Natural Resource Economics, and Interdisciplinary Center for Aquaculture Research (INCAR), Universidad de Concepción, Concepción, Chile
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Published Online: 2016-02-05 | DOI: https://doi.org/10.1515/bejeap-2014-0202

Abstract

Recent theoretical developments show the conditions under which it is cost-effective for the regulator to induce perfect compliance in cap-and-trade programs. These conditions are based on the ability that a regulator with perfect information has to induce the firms to emit any desired level with different combinations of the number of permits supplied to the market and the monitoring probability, assuming that firms are expected profit maximizers. In this paper, we test this hypothesis with a series of laboratory experiments. Our results suggest that firms may behave significantly different from what these models predict precisely when the different combinations of the supply of permits and the monitoring probability induce compliance versus noncompliance. More specifically, by allowing noncompliance in a manner consistent with theory, the regulator could produce a decrease in emissions and an increase in the market price of tradable permits that is not predicted by the theoretical models. The implications for the cost-effective design of environmental policy are discussed.

This article offers supplementary material which is provided at the end of the article.

Keywords: emission standards; emissions trading; enforcement; environmental policy; laboratory experiments

JEL: C91; L51; Q58; K42

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About the article

Published Online: 2016-02-05

Published in Print: 2016-04-01


Funding Source: Agencia Nacional de Investigación e Innovación – Uruguay (Grant/Award Number: FCE_2009_1_2801); NEXUS Fulbright Program (Grant/Award Number: Exchange Visitor Program No. G-1-00005); and CONICYT-FONDAP

Award identifier / Grant number: FCE_2009_1_2801

Agencia Nacional de Investigación e Innovación – Uruguay (Grant/Award Number: FCE_2009_1_2801); NEXUS Fulbright Program (Grant/Award Number: Exchange Visitor Program No. G-1-00005); and CONICYT-FONDAP (Grant/Award Number: 15110027)


Citation Information: The B.E. Journal of Economic Analysis & Policy, Volume 16, Issue 2, Pages 727–753, ISSN (Online) 1935-1682, ISSN (Print) 2194-6108, DOI: https://doi.org/10.1515/bejeap-2014-0202.

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