Grantee Research Project Results
2002 Progress Report: An Investigation of Compliance Behavior and Enforcement of Emissions Trading Programs Using Experimental Analyses
EPA Grant Number: R829608Title: An Investigation of Compliance Behavior and Enforcement of Emissions Trading Programs Using Experimental Analyses
Investigators: Murphy, James , Stranlund, John
Institution: University of Massachusetts - Amherst
EPA Project Officer: Hahn, Intaek
Project Period: January 1, 2002 through December 31, 2003 (Extended to April 28, 2005)
Project Period Covered by this Report: January 1, 2002 through December 31, 2003
Project Amount: $227,860
RFA: Market Mechanisms and Incentives for Environmental Management (2001) RFA Text | Recipients Lists
Research Category: Environmental Justice
Objective:
Although there is a substantial body of economic theory about compliance and enforcement in emissions trading programs and readily available information about how existing emissions trading programs are enforced, there are no empirical analyses of the determinants of compliance decisions in emissions trading programs. Furthermore, there are no empirical analyses of the various elements of actual or proposed enforcement designs. Toward filling these gaps, the objective of this research project is to design and conduct laboratory experiments to test a number of hypotheses about compliance behavior and enforcement strategies for emissions trading programs.
Progress Summary:
The focus during Year of the project was to complete the theoretical model that served as the basis for hypotheses to be tested, finalize the experimental design, develop the software for the experiments, conduct pilot experiments, and begin data collection.
The paper presented at the University of Rhode Island (and shortly thereafter at the U.S. Environmental Protection Agency’s Market Mechanisms and Incentives Workshop in May) includes preliminary results from the initial round of experiments. This paper notes that emissions trading programs promise to achieve environmental goals at a lower cost than traditional command and control (CAC) strategies. Efficiency gains will not materialize, however, if these programs are not enforced well. Moreover, strategies for enforcing these programs likely are to be very different from those used to enforce CAC regulations because in a market setting, price becomes a key determinant of compliance and links the compliance decisions of all market participants.
Although there is a substantial body of economic theory about compliance and enforcement in emissions trading programs, and readily available information about how existing emissions trading programs are enforced, there are no empirical analyses of the determinants of compliance decisions in emissions trading programs. The paper mentioned above contains preliminary results from laboratory experiments designed to examine compliance behavior in emissions trading programs.
The preliminary results from these experiments suggest that there is substantial support for most hypotheses. Of particular note is some support for the hypothesis that a firm’s violations are independent of the firm’s abatement costs. If supported after further investigation, this could suggest that when permits are tradable, it does not make sense to target (i.e., audit more frequently) any particular group of firms because violations (but not emissions) are predicted to be the same across firms.
Future Activities:
We will complete the first round of experiments during the coming year. When completed, we will have sufficient data for at least three journal articles testing different hypotheses about enforcement and compliance. In the next stage, we will design and conduct experiments that address hypotheses about enforcement and compliance behavior when firms have the opportunity to self-report emissions and also can engage in activities to avoid detection of violations.
Journal Articles:
No journal articles submitted with this report: View all 22 publications for this projectSupplemental Keywords:
permit allocations, Economic, Social, and Behavioral Science Research Program, economics and business, market mechanisms, social science, allowance allocation, allowance market performance, compliance behavior, decisionmaking, effects of policy instruments, emissions trading, enforcement and compliance, environmental economics, financial mechanisms, impact of federal policy instruments, incentives, liability rules, market incentives, market-based mechanisms, marketable permits, policy incentives, policy instruments, policymaking, pollution fees, socioeconomics,, RFA, Economic, Social, & Behavioral Science Research Program, Scientific Discipline, Economics and Business, Market mechanisms, Social Science, market incentives, policy instruments, effects of policy instruments, financial mechanisms, market-based mechanisms, compliance behavior, impact of federal policy instruments, policy incentives, policy making, decision making, incentives, socioeconomics, enforcement and compliance, cap and trade systems, environmental impact fees, pollution fees, tradeable permits, allowance allocation, allowance market performance, marketable permitsRelevant Websites:
http://www.umass.edu/resec/faculty/murphy Exit
Progress and Final Reports:
Original AbstractThe perspectives, information and conclusions conveyed in research project abstracts, progress reports, final reports, journal abstracts and journal publications convey the viewpoints of the principal investigator and may not represent the views and policies of ORD and EPA. Conclusions drawn by the principal investigators have not been reviewed by the Agency.