No SDES-2014-2
Title On the fundamental performance of a marketable permit system in a trader setting
Author Koji Kotani, Kenta Tanaka, & Shunsuke Managi
Abstract A marketable permit system (MPS) has been suggested as solutions to environmental problems. Whereas properties of MPSs in non-trader settings are well-documented, little is explored about how MPSs perform in trader settings. We instituted two auctions of trader settings in MPS experiments: double auction (DA) and uniform price auction (UPA), and obtain the following results: UPAs are more efficient and generate more stable prices than DAs; UPAs induce subjects to more truthfully reveal information about abatement costs for emissions; and a considerable proportion of trades in DAs consist of speculation. Thus, UPAs work better than DAs in trader settings.
Revised version published in Experimental Economics