Topics in Establishing Environmental Markets: Performance of a Multi-Units Public Good Auction and Credit Stacking Policy

The purpose of my study is to better understand the current obstacles in establishing a functional environmental market. In the dissertation, I study this problem from both supply and demand sides; that is, I consider the available actions from the environmental credit suppliers, such as landowners or farmers, under different market institutions, and I also study the buyers’ behaviors for a potential environmental market for a public good, such as private individuals who hold positive values toward various types of ecosystem services. I mainly address two questions. The first question is how to raise revenue from private individuals to support an environmental market, which is discussed extensively in the first chapter. I investigate new auction approaches to support an environmental market, focusing on the differences in individuals’ contribution behaviors when they are asked to support a public or common good in different auction approaches. Experimental results show that the proposed auction approaches can significantly increase the realized social surplus compared to the traditional pay-your-bids approach. The second question is called the “credit-stacking” problem, which concerns suppliers’ choices and participation constraints when multiple environmental markets are to be established. Since environmental markets may be established at different scales (e.g., regional or global), I propose to study the impact of credit stacking when multiple environmental markets, including a regional and a global environmental market, coexist. I also study credit suppliers’ behavioral responses in different market institutions (or different policies, such as when credit stacking is allowed versus the situation when credit stacking is not allowed). In particular, I study how the behavioral responses of producers in the long run will influence the policy outcomes. I find that not allowing credit stacking is a substantial restriction against achieving social optimality and the social inefficiency loss due to such restriction could be magnified in the long run. My research on credit stacking policy is discussed in the second and third chapters