Template-Type: ReDIF-Paper 1.0 Author-Name: John K. Stranlund Author-Name-First: John Author-Name-Last: Stranlund Author-Email: stranlund@resecon.umass.edu Author-Workplace-Name: Department of Resource Economics, University of Massachusetts Amherst Author-Name: James J. Murphy Author-Name-First: James Author-Name-Last: Murphy Author-Email: murphy@uaa.alaska.edu Author-Workplace-Name: Department of Economics, University of Alaska Anchorage Author-Name: John M. Spraggon Author-Name-First: John Author-Name-Last: Spraggon Author-Email: spraggon@resecon.umass.edu Author-Workplace-Name: Department of Resource Economics, University of Massachusetts Amherst Author-Name: John K. Stranlund Title: Imperfect Enforcement of Emissions Trading and Industry Welfare: A Laboratory Investigation Abstract: This paper uses laboratory experiments to investigate the performance of emission permit markets when compliance is imperfectly enforced. In particular we examine deviations in observed aggregate payoffs and expected penalties from those derived from a model of risk-neutral payoff-maximizing firms. We find that the experimental emissions markets were reasonably efficient at allocating individual emission control choices despite imperfect enforcement and significant noncompliance. However, violations and expected penalties were lower than predicted when these are predicted to be high, but were about the same as predicted values when these values were predicted to be low. Thus, although a standard model of compliance with emissions trading programs tends to predict significantly higher violations than we observe when subjects have strong incentives to violate their emissions permits, individual emissions control responsibilities are distributed among firms as predicted. Creation-date: 2012-11 File-URL: http://www.econpapers.uaa.alaska.edu/RePEC/ala/wpaper/ALA201206.pdf File-Format: Application/pdf Classification-JEL: C91, L51, Q58, C90, D62, H23 Keywords: experimental economics, laboratory experiments, emissions trading, enforcement, environmental economics Publication-Status: Published in Handbook on Experimental Economics and the Environment. John A. List and Michael K. Price, editors. Northampton, MA: Edward Elgar. Handle: RePEc:ala:wpaper:2012-06