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Emissions standards

2016-03-31

The regulatory choice of noncompliance in the lab: effect on quantities, prices, and implications for the design of a cost-effective policy

Recent theoretical developments show the conditions under which it is cost effective for the regulator to induce perfect compliance in cap and trade programs. These conditions are based on the ability that a regulator with perfect information has to induce the firms to emit any desired level with different combinations of the number of permits supplied to the market and the monitoring probability, assuming that firms are expected profits maximizers. In this paper we test this hypothesis with a series of laboratory experiments.