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

Abstract

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.

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