Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/105796 
Year of Publication: 
2014
Series/Report no.: 
cege Discussion Papers No. 225
Publisher: 
University of Göttingen, Center for European, Governance and Economic Development Research (cege), Göttingen
Abstract: 
Certificate trading schemes have been discussed as a cost-efficient means of reducing land use in Germany by capping and reallocating permissions to conduct building projects. However, in contrast to the established cap & trade systems for emissions, reputation-seeking politicians would be in charge of buying and trading certificates - an aspect not considered to date. We thus present a laboratory experiment that captures politician´s incentives connected to electoral cycles in a cap & trade scheme for land use, whereby tradable certificates are auctioned and grandfathered in equal shares. We find the cap & trade system to be efficient at large, yet there are several politically relevant distortions that are aggravated by self-serving incentives. Prices show high volatility, initially by far exceed fair values and are substantially biased by the endowment effect. Further, the timing and location of land use projects and the heterogeneity in income across municipalities are sensitive to the specifics of the system and politicians´ interests. We thus identify potential problems to a cap & trade system for land use that could substantially reduce both its assumed superior efficiency and its political feasibility.
Subjects: 
economic experiment
land use
municipal actors
political business cycle
tradable certificates
JEL: 
C91
Q58
Document Type: 
Working Paper

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