Cap and Trade for Salinity: Property Rights and Private Abatement Activities, a Laboratory Experiment Market
Final report for MBI project 10
Charlotte Duke for the Market Based Instruments
Working Group
December 2005
PDF file
About this report
The objective of Market Based Instruments Pilot number 10 (MBI 10), is to
investigate the economic and environmental performance of two market based policy
mechanisms for point-source salinity. MBI 10 uses economic experiments to test the
performance of a salinity levy and a tradable salinity permit system (TEP) to manage
river salinity concentrations in the Murray. The economic experiments use
information from the Sunraysia irrigation region located along the Murray River in
Northern Victoria. The field information is used to translate a diffuse source of
salinity into a point-source. This is achieved through salinity impact zoning.
Production information about local agricultural industries is provided to
participants (also called subjects) in the experiment. Subjects then play the role of an
irrigator and must make decisions about water use, salt impact/cost and irrigation
technology (abatement). If subjects make profitable decisions then they earn money in
the experiment. The experiments set-up a simplified environment. The economic
incentives are broken down, isolated and induced in the economic laboratory. The
experimenter can then change some economic incentives and/or field conditions while
holding others constant. This control and treatment allows policy makers to observe
the behaviour of participants under different policy designs. Carefully built
experiments can provide useful information about new policies and can identify
policy bugs before field implementation.
This paper reports the learnings from two experiments implemented in MBI 10. Each experiment is made up of three treatments. The first experiment investigates the performance of a policy that is currently operating in the field, the Sunraysia Salinity Levy. The second experiment investigates an alternative policy, a tradable salinity permit system. Both policies are compared to a no salinity policy baseline (control) treatment in which there is an operating water market, but no policy that accounts for the cost of salinity.
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