IMPLICATIONS OF ALTERNATIVE EMISSION TRADING PLANS: EXPERIMENTAL EVIDENCE

Abstract. Two approaches to emissions trading are cap‐and‐trade, with an aggregate cap on emissions distributed as emission allowances, and baseline‐and‐credit, with firms earning emission reduction credits for emissions below baselines. Theory suggests the long‐run equilibria of the plans will differ with baselines proportional to output. To test this prediction we develop a computerized environment in which subjects representing firms can …