So, last weekend I'm looking for an experiment on Veconlab for my introductory environmental economics class to work on while I was at the CNREP conference last week. I like the emissions permit experiment that illustrates the equivalence of buying or gifting pollution permits. It is a bit hard to find (turns out it is called "production cost" ... I finally found it and will present the results in a week or so) and I stumble across the emissions permits experiment:
Bidders in these auctions acquire "permits," e.g. emissions allowances or other licenses. Bidding takes place in "rounds," with a cutoff price that is either clock driven or bid driven, and with prices that either increase or decrease (Dutch). Single-round sealed bid procedures and continuous-time formats are also available, with either uniform or "discriminatory" prices. The "shot clock" hybrid starts as an ascending price clock and ends with a single-round first-price "shootout" among those bidders that are still active in the auction when the number of permits requested reaches a target cutoff. Other setup options include asymmetries in costs and permit needs, the presence of permit banking, secondary "spot" markets, a chat room for collusive disucssions, free "grandfathered" permit allocations, and the amount of inforrmation that is revealed after each round of bidding.
... This program was used to design auctions for the Regional Greenhouse Gas Initiative (RGGI).
I'm thinking this would be great for my class! So I keep reading and try to figure out the rules. Bad idea as it is the most complicated Veconlab experiment that I've ever tried to understand. I'm like, dang, this is designed for an experimental economist, not a vanilla economist to use for their classes (like most of Veconlab).
Then, last night the Easter bunny delivered my RePEc "New Economics Papers: Environmental Economics" email from Francisco S. Ramos that included this paper:
Investigation of the Effects of Emission Market Design on the Market-Based Compliance Mechanism of the California Cap on Greenhouse Gas Emissions
Date: 2013-02-18 By: Charles A. Holt (University of Virginia)
William M. Shobe (University of Virginia)URL: http://d.repec.org/n?u=RePEc:vac:report:rpt13-01&r=env The state of California has implemented an economy-wide program to regulate its greenhouse gas emissions. A significant share of the emission reductions will be obtained via a cap and trade program with a mix of auctioning and free allocation of allowances. This program has a number of novel design features including, among other things, a price containment reserve, a limit on ownership of allowances, and the forced consignment to auction of some of the share of freely allocated allowances. We use a series of laboratory experiments to test the influence of two of these design features on the performance of the emissions market. We test the effect of holding limits and of the new three-tier price containment sale mechanism. We find that tight holding limits used to prevent market dominance reduce liquidity and appear to harm market efficiency and price discovery. The price containment sale mechanism reduces price spikes during per Keywords: Emission markets; experiments; cap and trade; greenhouse gas emissions; market design
Now I get it (2+2), Charles Holt, of Veconlab, and Bill Shobe are designing these regional permit markets. I should have known this since I saw Shobe present a paper at the Appstate Experimental Economics conference awhile back. And here is a Holt/Shobe/RFF paper from 2007 describing the RGGI auctions.
Anyway, I'm a fan of lab experiments (the research and using simple ones for teaching) but this is way beyond me. On the other hand having the RGGI experiment online seems like too much of an opportunity for me to pass up. Any suggestions? My first thought is to spend half the summer trying to understand it and then run it with my senior seminar class in the fall.
