Teaching Opportunity Cost in an Emissions Permit Experiment

Download
Charles Holt
Erica Myers
Wråke Markus
Dallas Burtraw
Svante Mandell

This paper describes an individual choice experiment that can be used to teach students how to correctly account for opportunity costs in production decisions. Students play the role of producers that require a fuel input and an emissions permit for production. Given fixed market prices, they make production quantity decisions based on their costs. Permits have a constant price throughout the experiment.

In one treatment, students have to purchase both a fuel input and an emissions permit for each production unit. In a second treatment, they receive permits for free and any unused permits are sold on their behalf at the permit price. If students correctly incorporate opportunity costs, they will have the same supply function in both treatments. This experiment motivates classroom discussion of opportunity costs and emission permit allocation under cap and trade schemes. The European Union Emissions Trading Scheme (EU ETS) provides a relevant example for classroom discussion, as industry earned significant 'windfall profits' from free allocation of emissions permits in the early phases of the program.

MEET US


5-6
Dec

Vision Zero for Sustainable Road Safety in the Baltic Sea Region

The conference Vision Zero for Sustainable Road Safety in the Baltic Sea Region is held i Vilnius, Lithuania. VTI is part of the organisation committé and also one of the speakers.
25-27
Aug

ICTTP 2020

ICTTP, International Conference on Traffic and Transport Psychology, is held in Gothenburg, Sweden.

LATEST NEWS


2018-10-29

International standardisation efforts have many advantages

VTI participates in several international standardisation committees. The work is important because it helps to ensure that standards can be adapted to Swedish conditions and it also provides access to valuable contacts and networks.


2018-10-24

China wants to work with the best

Through the CTS cooperation, VTI is gaining valuable research contacts with China. The country is facing major challenges in the field of road safety but also has enormous potential.


2018-10-23

VTI participated in conference on electric roads

Systems with electrified roads are a relatively new concept and many projects have been launched in recent years. To stimulate the transfer of knowledge and collaboration, the Research and Innovation Platform for Electric Roads arranged its second...


2018-10-18

ADAS&ME is tackling the interaction between people and technology

ADAS&ME is a major EU project focused on automation, the human condition and the human environment. The budget is EUR 9.6 million and VTI is the coordinator.


2018-10-05

Users contribute to the development of train simulators

Apart from advanced driving simulators, VTI has developed several variations of train simulators which are used for training, education and research. In recent years, interest has increased drastically among major actors in the railway sector, and VTI has...


2018-10-03

VR study to contribute to a better working environment for bus drivers

A study where bus drivers test autonomous driving in a VR environment may contribute to a better working environment with reduced stress on the driver and safer driving.