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Pricing Strategies under Emissions Trading - an experimental analysis
IVL Swedish Environmental Research Institute.
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2008 (English)Report (Other academic)
Abstract [sv]

An important feature in the design of an emissions trading program is how emissions allowances are initially distributed into the market. In a competitive market the choice between an auction and free allocation should, according to economic theory, not have any influence on firms' productionchoices nor on consumer prices. However, the debate around current emissions trading systems shows that parts of industry, the general public and policy making community expect the method of allocation to affect product prices. This paper reports on the use of experimental methods to investigate behavior with respect to how prices will be determined under a cap?and?trade program with different allocation methods. Participants initially display a variety of pricing strategies. However, given a simple economic setting in which earnings depend on behavior, we find that subjects learn to consider the value of allowances and overall behavior moves toward that predicted by economic theory.

Abstract [en]

An important feature in the design of an emissions trading program is how emissions allowances are initially distributed into the market. In a competitive market the choice between an auction and free allocation should, according to economic theory, not have any influence on firms' productionchoices nor on consumer prices. However, the debate around current emissions trading systems shows that parts of industry, the general public and policy making community expect the method of allocation to affect product prices. This paper reports on the use of experimental methods to investigate behavior with respect to how prices will be determined under a cap?and?trade program with different allocation methods. Participants initially display a variety of pricing strategies. However, given a simple economic setting in which earnings depend on behavior, we find that subjects learn to consider the value of allowances and overall behavior moves toward that predicted by economic theory.

Place, publisher, year, edition, pages
IVL Svenska Miljöinstitutet, 2008.
Series
B report ; B1806
Keywords [sv]
Carbon dioxide, climate change, Emissions trading, distributional effects, electricity, allocation, auction, JEL Classification: C91, D21, D44, D61, Q54
Identifiers
URN: urn:nbn:se:ivl:diva-2015OAI: oai:DiVA.org:ivl-2015DiVA, id: diva2:1551458
Available from: 2021-05-05 Created: 2021-05-05 Last updated: 2021-05-05Bibliographically approved

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CiteExportLink to record
Permanent link

Direct link
Cite
Citation style
  • apa
  • harvard1
  • ieee
  • modern-language-association-8th-edition
  • vancouver
  • Other style
More styles
Language
  • de-DE
  • en-GB
  • en-US
  • fi-FI
  • nn-NO
  • nn-NB
  • sv-SE
  • Other locale
More languages
Output format
  • html
  • text
  • asciidoc
  • rtf