Regulations that are designed to improve social welfare typically begin with the premise that individuals are purely self-interested. Experimental evidence shows, however, that individuals do not typically behave this way; instead, they tend to strike a balance between self and group interests....

A large, but inconclusive, literature addresses how economic heterogeneity affects the use of local resources and local environmental quality. One line of thought, which derives from Nash equilibrium provision of public goods, suggests that in contexts in which individual actions degrade local...

This paper uses laboratory experiments to investigate the performance of emission permit markets when compliance is imperfectly enforced. In particular we examine deviations in observed aggregate payoffs and expected penalties from those derived from a model of risk-neutral payoff-maximizing...

All environmental policies involve costs of implementation and management that are distinct from pollution sources’ abatement costs. In practice, regulators and sources usually share these administrative costs. We examine theoretically an optimal policy consisting of an emissions tax and the...

This paper considers the optimal design of an emissions trading program that includes a safety valve tax that allows pollution sources to escape the emissions cap imposed by the aggregate supply of emissions permits. I demonstrate that an optimal hybrid emissions trading/emissions tax policy...

This paper uses laboratory experiments to test the theoretical observations that both the violations of competitive risk-neutral firms and the marginal effectiveness of increased enforcement across firms are independent of differences in their abatement costs and their initial allocations of...