International Journal of Business and Economics

International Journal of Business and Economics
Volume 2, No. 2

August, 2003
Does the Varian Mechanism Work?--Emissions Trading as an Example
Yasuyo Hamaguchi
Faculty of Economics, Kyoto sangyo University, Japan
Satoshi Mitani
Matsui Securities Co., Ltd., Japan
Tatsuyoshi Saijo
Institute of social and Economic Research, Osaka University, Japan
This paper investigates whether Varian's(1994) compensation mechanism can work in a laboratory. The results show that this mechanism does not work as in the theory. We found that the magnitude of penalties crucially affects subjects' behavior.
Keywords:emissions trading, compensation mechanism, experiments.
JEL Classifications:C91, D62, Q25.