Anticipating the market reaction would help decision makers to choose and to operate a certain way to reach a specific goal. Experiments could be a potential method to achieve this anticipation, especially when there is no reference market and, thus, it is impossible to observe previous behaviour by agents. Environment is one of the sectors where experiments in anticipation might be useful. The objective of this paper is to show the importance of experiments in the analysis of people’s propensity toward the environment and in evaluating environmentally friendly investments. We discuss the application of a laboratory experiment to environmental regulation. In particular, we analyse the emission trading scheme (ETS) with reference to the aviation sector. In the laboratory, we test the propensity of firms to purchase permits to emit CO2 and to change their production technology. We consider a realistic framework by identifying a maximum limit of emissions established by the regulator, offering the opportunity to firms to change the initial (highly pollutant) technology. We first carry out a pilot experiment, with a very limited set of instructions for the participants and no real remuneration. Afterwards, we run a proper experiment, giving detailed instructions and clarifying the transformation of pay-offs in currency. We obtain interesting results, showing that experiments might be a valid instrument, but that their design is extremely important. The results of the pilot experiment are in fact very different from those of the final experiment, due in part to the different paying out rules, but also to the improvement in the framework design, which led to a greater awareness of the participants. This paper shows that experiments are a valid policy support instrument, but their correct design is topical for its performance.

Market-Based Measures: The European Union Emission Trading Scheme and the Carbon Offsetting and Reduction Scheme for International Aviation

A. S. Bergantino
;
2020

Abstract

Anticipating the market reaction would help decision makers to choose and to operate a certain way to reach a specific goal. Experiments could be a potential method to achieve this anticipation, especially when there is no reference market and, thus, it is impossible to observe previous behaviour by agents. Environment is one of the sectors where experiments in anticipation might be useful. The objective of this paper is to show the importance of experiments in the analysis of people’s propensity toward the environment and in evaluating environmentally friendly investments. We discuss the application of a laboratory experiment to environmental regulation. In particular, we analyse the emission trading scheme (ETS) with reference to the aviation sector. In the laboratory, we test the propensity of firms to purchase permits to emit CO2 and to change their production technology. We consider a realistic framework by identifying a maximum limit of emissions established by the regulator, offering the opportunity to firms to change the initial (highly pollutant) technology. We first carry out a pilot experiment, with a very limited set of instructions for the participants and no real remuneration. Afterwards, we run a proper experiment, giving detailed instructions and clarifying the transformation of pay-offs in currency. We obtain interesting results, showing that experiments might be a valid instrument, but that their design is extremely important. The results of the pilot experiment are in fact very different from those of the final experiment, due in part to the different paying out rules, but also to the improvement in the framework design, which led to a greater awareness of the participants. This paper shows that experiments are a valid policy support instrument, but their correct design is topical for its performance.
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/11586/267801
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