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| Type | Working Paper |
| Scope | Discipline-based scholarship |
| Title | Regulated and non-regulated companies, technology adoption in experimental markets for emission permits, and option contracts |
| Organization Unit | |
| Authors |
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| Language |
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| Institution | University of Zurich |
| Series Name | Grantham Research Institute on Climate Change and the Environment |
| Number | 41 |
| Date | 2011 |
| Abstract Text | 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 enablesus 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 significant rolein the choice of their options strategy. |
| Official URL | http://eprints.lse.ac.uk/37577/1/Regulated_and_non-regulated_companies%2C_technology_adoption_in_experimental_markets_for_emission_permits%2C_and_options_contracts(lsero).pdf |
| Other Identification Number | merlin-id:4643 |
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