Short-Run Implications of Cap-and-Trade versus Baseline-and-Credit Emission Trading Plans: Experimental Evidence

Two approaches to emissions trading are cap-and-trade, in which an aggregate cap on emissions is distributed in the form of allowance permits, and baseline-and-credit, in which firms earn emission reduction credits for emissions below their baselines. Theoretical considerations suggest the long-run equilibria of the two plans will differ if baselines are proportional to output, because a variable baseline is equivalent to an output subsidy. This is in opposition to the prediction that when output capacity is fixed, the short-run equilibria of the two plans will be identical. As a first step towards testing the long-run model, this paper reports on a laboratory experiment designed to test the shortrun prediction. A computerized environment has been created in which subjects representing firms choose emission technologies under fixed output capacity and participate in markets for emission rights and for output. Demand for output is simulated. All decisions are tracked through a double-entry bookkeeping system. Our evidence supports the theoretical prediction that the two trading mechanisms yield similar outcomes, however both exhibit significant deviation from the predicted equilibrium.

Subsidizing Public Inputs

Investment in research and development may (with some probability) lead to reductions in a firm’s production cost. If the production-cost savings associated with successful research and development is freely disseminated to other firms as soon as it is realized, too few resources may be allocated to this input. In such an environment, subsidies to the public input can lead to optimal input use. Four alternative subsidy instruments are considered in this paper. Two are incremental subsidies and the others are conventional level subsidies. One of the incremental subsidies and one of the level subsidies crudely capture characteristics of incentive mechanisms used in the United States and Canada. A laboratory implementation of these instruments generally confirms that incremental subsidies are inferior to level subsidies.

Implications of Alternative Emission Trading Plans: Experimental Evidence

Two approaches to emissions trading are cap-and-trade, in which an aggregate cap on emissions is distributed in the form of emission allowances and baseline-and-credit, in which firms earn emission reduction credits for emissions below their baselines. Theoretical considerations suggest the long-run equilibria of the two plans will differ if baselines are proportional to output, because a variable baseline is equivalent to an output subsidy. To test this prediction we have developed a computerized environment in which subjects representing firms can adjust both their emission rates (per unit output) and capacity levels. Subjects buy or sell emission rights (allowances or credits) in a sealed bid call auction. The demand for output is simulated. All decisions are tracked through a double-entry bookkeeping system. This environment is to be used to compare short and long run responses to the alternative trading methods. Initial experiments in this environment will alternately hold emission rate and capacity choice constant. We report on six experimental sessions with variable emissions rates but fixed capacity and two pilot sessions with variable capacity but fixed emission rates.

Dark Forces At The Tevatron

A simple explanation of the W+dijet excess recently reported by the CDF collaboration involves the introduction of a new gauge boson with sizable couplings to quarks, but with no or highly suppressed couplings to leptons. Anomaly-free theories which include such a leptophobic gauge boson must also include additional particle content, which may include a stable and otherwise viable candidate for dark matter. Based on the couplings and mass of the Z' required to generate the CDF excess, we predict such a dark matter candidate to possess an elastic scattering cross section with nucleons on the order of sigma ~ 10^-40 cm^2, providing a natural explanation for the signals reported by the CoGeNT and DAMA/LIBRA collaborations. In this light, CDF may be observing the gauge boson responsible for the force which mediates the interactions between the dark and visible matter of our universe.Comment: 4 pages, no figure

Long-Run Implications of Alternative Emission Trading Plans: An Experiment with Robot Traders

Two approaches to emissions trading are cap-and-trade, in which an aggregate cap on emissions is distributed in the form of permits, and baseline-and-credit, in which firms earn credits for emissions below their baselines. Theoretical considerations suggest the long-run equilibria of the two plans will differ if baselines are proportional to output, because a variable baseline is equivalent to an output subsidy. This paper reports on a laboratory environment designed to test this prediction. A computerized environment has been created in which subjects representing firms choose capacity and emission rates and participate in markets for permits or credits and for output. Demand for output is simulated. All decisions are tracked through a double-entry bookkeeping system. The timing of decisions was adjusted to avoid short-run instability. The paper reports the parameterization for an experiment with human traders and results of a simulated experiment using robots.

Baseline-and-Credit Emission Permit Trading: Experimental Evidence Under Variable Output Capacity

Two approaches to emissions trading are cap-and-trade, in which an aggregate cap on emissions is distributed in the form of allowance permits, and baseline-and-credit, in which firms earn emission reduction credits for emissions below their baselines. Theoretical considerations suggest the long-run equilibria of the two plans will differ if baselines are proportional to output, because a variable baseline is equivalent to an output subsidy. As a progressive step towards testing the full long-run model, this paper reports on a laboratory experiment designed to test the prediction under fixed emission rates and variable output capacity. A computerized environment has been created in which sub jects representing firms choose output capacities under fixed emission technology and participate in markets for emission rights and for output. Demand for output is simulated. All decisions are tracked through a double-entry bookkeeping system. Our evidence supports the theoretical prediction that aggregate output and emissions are inefficiently high under a baseline-and-credit trading plan compared to a corresponding cap-and-trade plan.

Output Sharing Among Groups Exploiting Common Pool Resources

This paper provides an experimental testing ground for an equal output-sharing partnership approach as a common pool resource (CPR) management instrument. It examines the behaviour of resource users in output-sharing partnerships of different sizes, and evaluates the impact of partnership size and the way partners are assigned on effort (extraction) levels. Experimental results are very close to Nash predictions, and confirm that group size significantly affects resource user’s effort supply. The first best solution is achieved, when resource users are privately extracting from the CPR and equally sharing their output with the socially optimal number of partners. The way partners are allocated (randomly or with the same partners over 15 periods) does not significantly affect aggregate effort contributions. Income distribution, however, is more equitable with random allocation of partners than with fixed partners.

Preferences over the Fair Division of Goods: Information, Good, and Sample Effects in a Health Context

Greater recognition by economists of the influential role that concern for distributional equity exerts on decision making in a variety of economic contexts has spurred interest in empirical research on the public judgments of fair distribution. Using a stated-preference experimental design, this paper contributes to the growing literature on fair division by investigating the empirical support for each of five distributional principles — equal division among recipients, Rawlsian maximin, total benefit maximization, equal benefit for recipients, and allocation according to relative need among recipients — in the division of a fixed bundle of a good across settings that differ with respect to the good being allocated (a health care good — pills, and non-health care but still health-affecting good — apples) and the way that alternative possible divisions of the good are described (quantitative information only, verbal information only, and both). It also offers new evidence on sample effects (university sample vs. community samples) and how the aggregate ranking of principles is affected by alternative vote-scoring methods. We find important information effects. When presented with quantitative information only, support for the division to equalize benefit across recipients is consistent with that found in previous research; changing to verbal descriptions causes a notable shift in support among principles, especially between equal division of the goods and total benefit maximization. The judgments made when presented with both quantitative and verbal information match more closely those made with quantitative-only descriptions rather than verbal-only descriptions, suggesting that the quantitative information dominates. The information effects we observe are consistent with a lack of understanding among participants as to the relationship between the principles and the associated quantitative allocations. We also find modest good effects in the expected direction: the fair division of pills is tied more closely to benefit-related criterion than is the fair division of apples (even though both produce health benefits). We find evidence of only small differences between the university and community samples and important sex-information interactions.Distributive Justice; Equity; Resource Allocation; Health Care

Preferences over the Fair Division of Goods: Information, Good, and Sample Effects in a Health Context

Greater recognition by economists of the influential role that concern for distributional equity exerts on decision making in a variety of economic contexts has spurred interest in empirical research on the public judgments of fair distribution. Using a stated-preference experimental design, this paper contributes to the growing literature on fair division by investigating the empirical support for each of five distributional principles — equal division among recipients, Rawlsian maximin, total benefit maximization, equal benefit for recipients, and allocation according to relative need among recipients — in the division of a fixed bundle of a good across settings that differ with respect to the good being allocated (a health care good — pills, and non-health care but still health-affecting good — apples) and the way that alternative possible divisions of the good are described (quantitative information only, verbal information only, and both). It also offers new evidence on sample effects (university sample vs. community samples) and how the aggregate ranking of principles is affected by alternative vote-scoring methods. We find important information effects. When presented with quantitative information only, support for the division to equalize benefit across recipients is consistent with that found in previous research; changing to verbal descriptions causes a notable shift in support among principles, especially between equal division of the goods and total benefit maximization. The judgments made when presented with both quantitative and verbal information match more closely those made with quantitative-only descriptions rather than verbal-only descriptions, suggesting that the quantitative information dominates. The information effects we observe are consistent with a lack of understanding among participants as to the relationship between the principles and the associated quantitative allocations. We also find modest good effects in the expected direction: the fair division of pills is tied more closely to benefit-related criterion than is the fair division of apples (even though both produce health benefits). We find evidence of only small differences between the university and community samples and important sex-information interactions.Distributive justice, equity, resource allocation, health care