Cookies?
Library Header Image
LSE Research Online LSE Library Services

Regulated and non-regulated companies, technology adoption in experimental markets for emission permits, and options contracts

Chesney, Marc, Taschini, Luca and Wang, Mei (2011) Regulated and non-regulated companies, technology adoption in experimental markets for emission permits, and options contracts. Centre for Climate Change Economics and Policy and Grantham Research Institute on Climate Change and the Environment working papers, 41. Centre for Climate Change Economics and Policy and Grantham Research Institute on Climate Change and the Environment, London, UK.

[img]
Preview
PDF
Download (1782Kb) | Preview

Abstract

This paper examines the investment strategies of regulated companies in abatement technologies, market participants' trading behaviors, and the liquidity level in an inter-temporal cap{and{trade market using laboratory experiments. The experimental analysis is performed under varying market structures: the exclusive presence of regulated companies; the inclusion of subjects not liable for compliance with environmental regulations; the availability of plain vanilla options. In line with theoretical models on irreversible abatement investment, the first experiment shows that regulated companies trade permits at a premium. At the same time the existence of a strict enforcement structure effectively prompts investments in new technologies. The second experiment shows that the presence of non-regulated companies adds liquidity to the market and does not increase price volatility. The last experiment enables us to investigate the impact of the presence of cash-settled options contracts on the trading strategies of regulated companies. Their expected emissions appears to play a signifcant role in the choice of their options strategy.

Item Type: Monograph (Working Paper)
Official URL: http://www2.lse.ac.uk/GranthamInstitute/Home.aspx
Additional Information: © 2011 The Authors
Library of Congress subject classification: G Geography. Anthropology. Recreation > GE Environmental Sciences
H Social Sciences > HC Economic History and Conditions
Journal of Economic Literature Classification System: C - Mathematical and Quantitative Methods > C0 - General > C02 - Mathematical Methods
C - Mathematical and Quantitative Methods > C9 - Design of Experiments > C91 - Laboratory, Individual Behavior
D - Microeconomics > D4 - Market Structure and Pricing > D40 - General
Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q5 - Environmental Economics > Q50 - General
Sets: Research centres and groups > Grantham Research Institute on Climate Change and the Environment
Collections > Economists Online
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Identification Number: 41
Date Deposited: 25 Jul 2011 13:36
URL: http://eprints.lse.ac.uk/37577/

Actions (login required)

Record administration - authorised staff only Record administration - authorised staff only