Conference Agenda

This study investigates the adoption and diffusion of cost-saving technologies under emissions taxes, emissions markets, and emissions markets with price collars (i.e., markets with a price ceiling and price floor). We first present a theoretical model of adoption and diffusion of a cost-saving technology under markets with price collars, which shows that technology diffusion depends on the collar position, in particular its midpoint, and the collar width. The model admits markets without price controls and emissions taxes as special cases and allows unambiguous rankings of the diffusion effects of the alternative policies. We implement a laboratory experiment to provide empirical tests of these rankings. In the experiment traders purchase emissions permits under uncertainty about their abatement costs, or they face an emissions tax, and they can choose to adopt a costly technology that reduces their abatement costs. The results provide strong support for the main theoretical predictions of differences in technology diffusion among the alternative control policies. Moreover, as predicted, firms with higher abatement costs adopt the technology more frequently, market prices increase with positive shocks to abatement costs, and prices decrease with technology diffusion.