Template-Type: ReDIF-Paper 1.0 Author-Name: John K. Stranlund Author-Name-First: John Author-Name-Last: Stranlund Author-Workplace-Name: 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-Workplace-Name: University of Massachusetts Amherst Author-Name: Nikolaos Zirogiannis Author-Name-First: Nikolaos Author-Name-Last: Zirogiannis Author-Workplace-Name: Indiana University Bloomington Title: Tying enforcement to prices in emissions markets: An experimental evaluation Abstract: We present results from laboratory emissions permit markets designed to investigate the transmission of abatement cost risk to firms’ compliance behavior and regulatory enforcement strategies. With a fixed expected marginal penalty, abatement cost shocks produced significant violations and emissions volatility as predicted. Tying the monitoring probability to average permit prices effectively eliminated noncompliance, but transmitted abatement cost risk to monitoring effort. Tying the penalty to average prices reduced violations, but did not eliminate them. Some individuals in these treatments sold permits at low prices, presumably in an attempt to weaken enforcement. While tying sanctions directly to prevailing permit prices has theoretical and practical advantages over tying monitoring to prices, our results suggest that this strategy may not be as effective as predicted without additional modifications. Creation-date: 2018 Number: 2018-05 Handle: RePEc:ala:wpaper:2018-05 File-URL: http://www.econpapers.uaa.alaska.edu/RePEC/ala/wpaper/ALA201805.pdf File-Format: Application/pdf Classification-JEL: C92, L51, Q58, D62, H23 Keywords: experimental economics, Emissions markets, risk and uncertainty, incomplete information, permit markets, compliance, enforcement, laboratory experiments. Publication-Status: Published in Journal of Environmental Economics and Management. Nov 2019.