Market Efficiency Of Emission Trade-an Experimental Study

With the rapid development of industrialization, the natural environment has been seriously destructed. More and more attention has been paid on environmental protection, many countries are looking for an effective means of pollution control. Emission trading has been applied by more and more countries and regions as a method with the characteristics of both environmental quality assurance and cost-effectiveness. China has began the pilot of emission trade in the 1980s, however, because China's market economic system is still not perfect, there are many problems may be studied during the implementation process.This paper uses experimental method to simulate product markets and emission permit trading markets. It explores the impact of tax policy and permit trade policy on the price behavior of product market, and compare the result with the theoretical equilibrium predictions of neoclassical economics; uses nonparametric test method to compare the statistical significance of the two policies, and the impact on market efficiency and price behavior of product market if there is market power in permit market which is caused by initial allocation; it also studies the interaction of the two market. The conclusion of the study and the main innovations are as follows:Within the simple setting explored here, the experimental results reveal the fact that the tax policy and permit trade policy have the similar performance in pollution control, but the market efficiency of permit trade policy is significantly higher then that of tax policy. However, when there is market power in permit trade market, the efficiency will be significantly lower than a competitive permit trading market.