Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/174362
Authors: 
Requate, Tilman
Camacho-Cuena, Eva
Ch'ng, Kean Siang
Waichman, Israel
Year of Publication: 
2018
Series/Report no.: 
Economics Working Paper 2018-02
Abstract: 
We experimentally test the truth-telling mechanism proposed by Montero (2008) for eliciting firms' abatement costs. We compare this mechanism with two well-known alternative allocation mechanisms, grandfathering and pure auctioning. We conducted 27 treatments with a total of 623 participants, controlling for the allocation mechanism, the number of firms, and the true maximal emission levels. We find that, in line with the theoretical predictions, firms over-report their maximal emissions under grandfathering and under-report them under pure auctioning, while under Montero's mechanism firms almost always report their maximal emissions truthfully. However, in terms of efficiency, the difference between Montero's mechanism and pure auctioning disappears when there is more than one firm in the market.
Subjects: 
mechanism design
environmental policy
permit trading
auctions
experiment
JEL: 
C92
D44
L51
Q28
Document Type: 
Working Paper
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