pricing externalities and moral behaviour10.1038/s41893-020-055… · axel ockenfels 1, peter...

Articleshttps://doi.org/10.1038/s41893-020-0554-1

Pricing externalities and moral behaviourAxel Ockenfels 1, Peter Werner2 and Ottmar Edenhofer 3 ✉

1University of Cologne, Center for Social and Economic Behavior (C-SEB) and Department of Economics, Cologne, Germany. 2Maastricht University, School of Business and Economics, Department of Microeconomics and Public Economics, Maastricht, The Netherlands. 3Mercator Research Institute on Global Commons and Climate Change (MCC), Potsdam Institute for Climate Impact Research (PIK), and Technical University Berlin (TU Berlin), Berlin, Germany. ✉e-mail: [email protected]

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Pricing externalities and moral behavior

Supplementary Information

Axel Ockenfels

Peter Werner

Ottmar Edenhofer

_____________________

Axel Ockenfels, University of Cologne, Center for Social and Economic Behavior (C-SEB) and Department

of Economics, Cologne, Germany (e-mail: ockenfels at uni-koeln.de).

Peter Werner, Maastricht University, School of Business and Economics, Department of Microeconomics

and Public Economics, Maastricht, The Netherlands (e-mail: p.werner at maastrichtuniversity.nl).

Ottmar Edenhofer, Mercator Research Institute on Global Commons and Climate Change (MCC), Potsdam

Institute for Climate Impact Research (PIK), and Technical University Berlin (TU Berlin), Germany (e-

mail: edenhofer at pik-potsdam.de).

2

Supplementary Discussion

1. Details about the decision situation and the mechanisms to price emissions

In the auction treatment, we implement a multi-unit uniform price auction1: After the judge

has determined the maximum quantity of certificates (k) for the market and all bids from

the producers have been collected, the uniform market price for the certificate is determined

by the highest losing bid (the k+1-th bid) plus an increment of 0.01 Euro. Producers who

have placed a bid above the market price receive a certificate. As in our experiment, a

producer can be allotted at most one certificate in the uniform-price auction, bidding the

valuation is a weakly dominant strategy.

If several producers have placed the same bid and this is relevant for the allocation of the

certificates in the market, the tie is resolved randomly. In addition, when there is more than

one lowest winning bid in an auction, the uniform price is set equal to the last winning bid,

in order to induce a regret-free allocation in which none of the several producers with the

last winning bid would have an ex-post incentive to lower his bid. In case the maximum

number of certificates equals or exceeds the number of bids, the resulting certificate price

is zero, and all bidders receive a certificate for free.

In the price treatment, we implement a Becker-DeGroot-Marschak mechanism2: producers

who choose to participate in the market have to state their maximum acceptable price

(MAP) for the certificate. This maximum acceptable price is then compared with the

regulated market price as determined by the respective judge. If the MAP is larger or equals

the regulated price, the producer buys a certificate at the regulated price. If the MAP of the

producer is smaller than the regulated price, no trade takes place, and payoffs are zero for

this producer.

Prior to the trading activities of the producers, the task of the judges is to determine central

market parameters: in the auction treatments, a judge fixes the maximum number of

certificates that may be sold to the producers in one auction. It is therefore possible to

completely ban the trade by setting the number of certificates to 0, or to induce an allocation

of certificates to producers free of costs by choosing a quantity of 10 certificates. In the

3

price treatments judges can choose in a range from 0 and 13 Euro. Hence, judges’ decisions

may lie between the extremes of fixing the price at a prohibitively high level (> 12 Euros,

the maximum valuation) and allocating the certificate for free to the producers.

After judges have made their choices, producers have in the first step to decide whether to

enter the market at all or whether they prefer to stay out of the market. In the latter case,

they receive no payoffs from the experiment. If producers opt for entering the market, they

have to place their bids for the certificate in Euro. The division of the producer’s decision

into two steps is implemented because, given the possibility that some experimental

subjects may have moral objections against trading associated with environmental

externalities, they should be provided the possibility to unambiguously express their

unwillingness by staying out of the market.

2. Additional analyses

Supplementary Table 1. Judges’ decisions – Descriptive statistics

Treatment Full restriction

of trade (in %)

No. of

observations

CO2 Frame Auction 17.7% 124

Neutral Auction 1.9% 105

Price Frame 27.9% 122

Fine Frame 21.8% 133

Neutral Frame 3.9% 130

17.7% of the judges fully prohibits trade in the CO2 Frame Auction by assigning a quantity

of zero which is significantly higher than the 1.9% in the Neutral Auction (two-sample test

of proportions, p < 0.01 z = 3.90, n = 124 versus n = 105). There is a tendency to restrict

trade fully also under the price mechanism: 27.9% (21.8%) of judges in Price Frame (Fine

Frame) choose a prohibitively high price (> 12) compared to only 3.9% of the judges in

the Neutral Frame treatment. The differences between each CO2 treatment and the Neutral

Frame treatment are both significant (two-sample tests of proportions, p < 0.01, z = 5.27,

n = 122 versus n = 130 for Price Frame and Neutral Frame, and p < 0.01, z = 4.34, n =

133 versus n = 130 for Fine Frame and Neutral Frame) whereas the share of fully

4

restrictive choices do not differ between Price Frame and Fine Frame treatments (two-

sample test of proportions, p = 0.26, z = 1.12, n = 122 versus n = 133).

Supplementary Table 2. Determinants of judges’ decisions

Mechanism Auction Auction Price Price

Model 1 2 3 4

Dependent Variable

Trade

prohibited

Quantity Price

prohibitive

Price

(if q > 0 ) (if p ≤ 12)

OLS OLS OLS OLS

CO2 Frame Auction 0.161*** -2.834***

[0.040] [0.338]

Price Frame 0.252*** 2.467***

[0.047] [0.418]

Fine Frame 0.200*** 2.140***

[0.047] [0.401]

Dummy "Natural Sciences" -0.051 -0.814 0.057 0.235

[0.059] [0.493] [0.055] [0.481]

Dummy "Human Sciences" 0.092* -0.573 0.043 0.648

[0.055] [0.468] [0.053] [0.469]

Age 0.006 -0.026 0.008 -0.071

[0.005] [0.045] [0.007] [0.060]

Dummy "Female" -0.125*** -0.982*** 0.060 0.689*

[0.043] [0.368] [0.042] [0.370]

Constant -0.057 8.772*** -0.200 6.510***

[0.116] [0.992] [0.154] [1.354]

Observations 222 198 377 309

R-squared 0.132 0.299 0.088 0.155

Standard errors are listed in brackets, *** p<0.01, * p<0.1. "Trade prohibited" (Model 1) is a dummy variable

equal to one if the judge chose a quantity of zero. "Price prohibitive" (Model 3) is a dummy variable equal

to one if the judge chose a price higher than 12 which is never profitable for producers given the possible

valuations. “Age” is a participant’s age in years. The reference group for the faculty dummies is

"Management, Economics, and Social Sciences".

In the next step, we check whether the demographic background of the experimental judges

has a systematic impact on regulations. For each of the two mechanisms, we calculate

simple regression models in which we use judges’ decisions as the dependent variables. In

Model 1 (3), which refer to the auction (price) mechanism, the dependent variable is a

dummy equal to one if the induced regulation by the judge was prohibitive. In Model 2 (4)

for the auction (price) mechanism, the dependent variable is the judge’s choice for cases in

which the regulation was not prohibitive (the maximum number of certificates in Model 2

5

and the price in Model 4). Importantly, all previously reported treatment effects remain

significant in the specifications, and the demographic backgrounds of the participants do

not seem to have a systematic impact on choices across the specifications.1

To gain more insights into the determinants of the decision to participate and to bid in the

market, we check how producer decisions are linked to the valuation of the certificate. For

both mechanisms, we calculate linear probability models with a dummy variable equal to

one if the producer enters the market (Models 1 and 2 in Supplementary Tables 3 and 4

below) and linear models with the bid conditional on entering the market (Models 3 and 4).

As independent variables we include demographic values elicited in a questionnaire after

the experiment. Moreover, producer’s revenues are rescaled by subtracting 8 Euro, so that

in models in which we include interaction terms, each treatment dummy measures the

treatment effect at the “middle” valuation of 8 Euro.

Models 1 in Supplementary Tables 3 and 4 additionally include a producer’s valuation and

the dummy variables for the CO2 treatments. The estimated coefficients of all treatment

dummies are negative and highly significant, corroborating our result that the externality

keeps producers away from the market. Moreover, the models for both mechanisms show

a positive coefficient for the valuation variable which is significant in both specifications,

suggesting that high valuation producers tend to participate with a higher probability. As

the distribution of valuations is known and higher bidders have a higher chance of obtaining

a certificate and make a profit, this seems to be plausibly described, at first glance, as a

cheap talk effect: it is less costly for low-value bidders to express a concern regarding the

externality. However, comparing the impact of the valuation on market participation in the

treatments with and without CO2 externalities does not support this explanation. When we

add the interaction effect between the treatment dummy and the producer’s valuation to the

models for both mechanisms (Models 2 in Supplementary Tables 3 and 4), we see that none

of the interaction terms is significant. Hence, there is no indication that the producer’s

valuation has a different impact on the willingness to participate in markets with and

1 According to Models 1 and 2, female participants seem to be less likely to fully prohibit trade in the auction

mechanisms but, conditional on allowing at least some trade, females seem to choose a more restrictive

regulation.

6

without a CO2 externality. Instead, the mere existence of the CO2 externality seems to keep

some producers away from the market irrespective of their valuations.

Models 3 and 4 in Supplementary Tables 3 and 4 are calculated with the same set of

independent variables but use bidding prices as the dependent variables. In all models, a

positive and significant effect of a producer’s valuation is found which is substantially

lower than one, confirming the pattern of underbidding. Moreover, in line with the

descriptive statistics, we do not find any treatment effect on producers’ bidding behavior.

Finally, across the models, we do not find a robust effect of the demographic variables.

Supplementary Table 3. Determinants of producer decisions in the auction mechanism

Model 1 2 3 4

Dependent Variable Participate Participate Price bid Price bid

OLS OLS OLS OLS

Valuation (Euro) 0.029** 0.032* 0.413*** 0.513***

[0.012] [0.017] [0.125] [0.156]

CO2 Frame Auction -0.318*** -0.321*** 0.506 0.453

[0.069] [0.070] [0.723] [0.725]

CO2 Frame X Valuation

-0.006

-0.297

[0.025]

[0.275]

Dummy Natural Sciences -0.034 -0.039 1.804** 1.614*

[0.085] [0.087] [0.882] [0.899]

Dummy Human Sciences 0.042 0.039 -0.149 -0.192

[0.085] [0.086] [0.863] [0.863]

Age -0.003 -0.003 -0.033 -0.022

[0.006] [0.006] [0.065] [0.066]

Dummy (Female) -0.054 -0.055 0.087 0.063

[0.074] [0.074] [0.765] [0.765]

Constant 0.973*** 0.971*** 5.441*** 5.275***

[0.148] [0.148] [1.637] [1.643]


R-squared 0.165 0.165 0.156 0.165

Standard errors are listed in brackets, *** p<0.01, ** p<0.05, * p<0.1. "Participate" is a dummy variable

equal to one if the producer decided to trade. The "Valuation" variable has been rescaled (actual valuation -

8) so that the dummy variables for treatments reflect the respective effect at the valuation level of 8 in the

models with interaction effects. The reference category for the dummy variables consists of subjects in the

treatment "Auction Neutral".

7

Supplementary Table 4. Determinants of producer decisions in the price mechanism

Model 1 2 3 4

Dependent Variable Participate Participate Price bid Price bid

OLS OLS OLS OLS

Valuation (Euro) 0.020** 0.017 0.490*** 0.497***

[0.010] [0.017] [0.098] [0.149]

Dummy Price Frame -0.399*** -0.384*** -0.113 -0.114

[0.071] [0.073] [0.717] [0.725]

Price Frame X Valuation

0.020

0.013

[0.024]

[0.240]

Dummy Fine Frame -0.269*** -0.278*** 1.092 1.068

[0.071] [0.072] [0.677] [0.696]

Fine Frame X Valuation

-0.011

-0.036

[0.025]

[0.238]

Dummy Natural Sciences -0.046 -0.048 0.411 0.398

[0.069] [0.070] [0.677] [0.686]

Dummy Human Sciences -0.124 -0.133* 0.044 0.020

[0.079] [0.079] [0.814] [0.829]

Age -0.004 -0.003 -0.063 -0.063

[0.006] [0.006] [0.079] [0.079]

Dummy (Female) -0.130** -0.134** 0.529 0.521

[0.062] [0.063] [0.610] [0.619]

Constant 1.107*** 1.082*** 6.274*** 6.282***

[0.162] [0.163] [1.891] [1.910]


R-squared 0.170 0.177 0.177 0.177

Standard errors in brackets, *** p<0.01, ** p<0.05, * p<0.1. "Participate" is a dummy variable equal to one

if the producer decided to trade. The "Valuation" variable has been rescaled (actual valuation -8) so that the

dummy variables for treatments reflect the respective effect at the valuation level of 8 in the models with

interaction effects. The reference category for the dummy variables consists of subjects in the treatment

"Neutral Frame".

In the final step, we test to what extent attitudes towards climate change and political

orientation are predictive for moral behavior. In Supplementary Table 5, we report the

results of linear regression models that analyze the determinants of judges’ decisions to

prevent trade, either by quantity or by price regulation (Model 1), and of producers’

decisions to participate in the market (Model 2). In the models reported below, we use the

same set of independent variables as in the baseline specifications of Supplementary Tables

2 to 4 and add controls for experimental treatments and for environmental and political

attitudes. We integrate altogether three new variables based on the participants’ answers in

8

the post-experimental survey. First, we include a dummy variable equal to one if the

participant perceives the danger from climate change to be very big. Second, from the eight

questions related to a person’s attitude regarding environmental issues (see the

experimental instructions in Section “Supplementary Methods”), we construct an indicator

variable “Environmental Awareness” calculated as the mean of all responses to these

questions, with higher values indicating stronger environmental awareness.2 Third, we

construct a dummy variable “Left-wing” to control for political preferences of the

participants.3

As we expect an impact of these variables only for decisions associated with the CO2

externality, we restrict our analyses to the treatments CO2 Frame Auction, Price Frame and

Fine Frame.

In Model 1, we find that the proxy for environmental awareness is positively correlated

with a full prevention of trade by the judge. In this model, the dummy Price Frame is also

positive and significant, indicating the probability of fully preventing trade is higher in this

treatment than in the CO2 Frame Auction. Moreover, Model 2 suggests that the proxy for

environmental orientation also has predictive power for producer decisions – here, the

coefficient is negative and significant, indicating that producers with higher environmental

awareness are less like to enter the market. In addition, producers who consider the danger

resulting from climate change to be very big are significantly less likely to participate in

the market. Overall, the survey variables capturing participants’ attitudes towards the

environment therefore seem to significantly relate to moral behavior in our setting. At the

same time, the control for political preferences (left-wing orientation) is insignificant in

these analyses.

2 Variables for which higher values reflect weaker pro-environmental attitudes (questions 4 and 7) are

rescaled by calculating 8 – the response value. 3 The variable takes the value of one if the participant stated that she would vote for the German parties

“SPD”, “Grüne” and “Die Linke” if federal elections were held on the Sunday of the week our study took

place. We note that the number of missing values for these variables is relatively large in our setting,

indicating that a share of participants were not able or willing to answer the question: the shares of judges

(producers) who did not provide an answer in these treatments were 14.8% (11.6%). This reduces the number

of observations as the basis for the calculations of models relative to the models reported above.

9

Supplementary Table 5. Determinants of judge and producer decisions (CO2 treatments)

Model 1 2

Dependent variable Trade prevented Participate

OLS OLS

Valuation (Euro) 0.031***

[0.011]

Price Frame 0.140** -0.068

[0.058] [0.081]

Fine Frame 0.036 -0.016

[0.056] [0.082]

Dummy "Natural Sciences" -0.025 -0.026

[0.066] [0.080]

Dummy "Human Sciences" 0.012 -0.128

[0.061] [0.088]

Age 0.009 0.005

[0.007] [0.009]

Dummy "Female" -0.032 -0.060

[0.049] [0.075]

Danger very big 0.061 -0.197***

[0.051] [0.071]

Environmental awareness 0.122*** -0.132***

[0.035] [0.049]

Left-wing 0.032 -0.006

[0.049] [0.068]

Constant -0.627*** 1.322***

[0.212] [0.301]

Sample Judges Producers

Observations 313 205

R-squared 0.097 0.174

Standard errors in brackets, *** p<0.01, ** p<0.05. "Trade prevented" (Model 1) is a dummy variable equal

to one if the judge either chose a quantity of zero in the auction mechanism or a price higher than 12 in the

price mechanisms which is never profitable for producers given the possible valuations. The reference group

for the treatment dummies in the models is CO2 Frame Auction. “Age” is a participant’s age in years.

"Participate" (Model 2) is a dummy variable equal to one if the producer decided to trade. The "Valuation"

variable for producers in Model 2 has been rescaled (actual valuation -8).

10

Supplementary References

1 Krishna, V. Auction Theory. (Academic Press, 2002).

2 Becker, G. M., Degroot, M. H. & Marschak, J. Measuring utility by a single-

response sequential method. Behavioral Science 9, 226-232 (1964).

11

Supplementary Methods:

In the following, you find the experimental instructions for judges and producers in the

treatments CO2 Frame Auction and Price Frame translated from German. Instructions for

the other treatments were formulated in a similar way.

1. Instructions CO2 Frame Auction – Judge

General Information

Welcome to our experiment.

You must not communicate with other participants during the experiment. If you have any

questions, please raise your hand and the experimenter will come and help you.

Please take your time and make sure that you understand the instructions of the experiment that

begin on the following page. Afterwards, please make your decision. All decisions are treated

confidentially.

We guarantee that all aspects of the decision situation including payoffs and CO2 emissions will be

implemented exactly in the way described in the following instructions.

Information on the Experiment

Since 2005, there has been an emissions trading system in the European Union in which CO2

emission allowances are traded. CO2 is harmful to the climate and contributes to global warming.

Companies from selected sectors of the economy have to buy CO2 emission allowances for every

ton of CO2 they emit. A CO2 emission allowance stands for the right to emit one ton of CO2 into the

air. The goal is to mitigate climate change by limiting the amount of emission allowances.

In the course of this experiment, participants in another lecture at the University of Cologne can

purchase such a CO2 emission allowance. How the participants decide, what your decision is about

and what the consequences of both decisions are for participants and CO2 emissions is described in

the following.

In the other lecture, groups of 10 producers are randomly formed that will each bid in an auction.

Every producer needs exactly one CO2 emission allowance in order to produce one unit of a

fictitious good. When a producer produces the fictitious good, he generates a revenue. The

producers generate the following revenues:

12

Producer #1 generates revenue of 3 Euro










The producer numbers and revenues are assigned randomly.

In this experiment, you have the role of a judge. The task of the judges is to decide how many CO2

emission allowances (between 0 and 10) may be sold in an auction. For each group of 10 producers

in the other lecture, the decision of one judge will be chosen randomly, which then determines the

total supply of CO2 emission allowances.

The auction proceeds as follows:

First, each producer decides on whether or not to bid in the auction.

If a producer decides against bidding, he receives a payoff of zero.

If a producer decides to bid, he states his maximum bid for one CO2 emission allowance in

the next step.

In the auction, we bid on behalf of each producer until he wins or until he drops out of the

auction because the other maximum bids were higher.

This means that we start at a price of zero and increase the price of all offered CO2 emission

allowances in 1-cent increments until only as many producers are still bidding as there are

CO2 emission allowances in the auction. We guarantee that in the event of winning a

producer will never pay more than is absolutely necessary in order to just outbid his

competitors. Therefore, a producer should state his personal limit as the maximum bid, i.e.

the highest price he is willing to pay for the CO2 emission allowance.

The price that has to be paid by all winners is then equal to the highest losing maximum

bid (i.e. the maximum bid of the producer who quit the auction last) plus 1 cent.

If a producer gets nothing in the auction, his payoff is zero.

13

If a producer has won the auction and bought a CO2 emission allowance, he uses it for production.

The producer then receives a payment equal to his revenue for the fictitious good minus the price

for the CO2 emission allowance. It follows that:

Profit of the producer = Revenue in Euro

- Price for the CO2 emission allowance in Euro

Please note the following: if a producer from the other lecture buys a CO2 emission allowance in

this experiment, indeed one ton of CO2 will be expelled into the atmosphere with this emission

allowance.

Each of the 10 maximum possible CO2 emission allowances that is not bought or not approved for

sale by the judges will be destroyed by us, and one ton of CO2 less will be emitted for each unused

emission allowance.

We collaborate with an organization that ensures that the unused CO2 emission allowances are

destroyed and thus indeed one ton of CO2 is abated per emission allowance; the proof for this can

be inspected at our chair three weeks after this experiment.

Your decision:

Please indicate now how many CO2 emission allowances may be sold in the auction (please

state a number between 0 and 10):

The number of CO2 emission allowances that may be sold in the auction is:

________ CO2 emission allowances.

After the lecture, the producers who bought a CO2 emission allowance in the auction and used it

for production get their profit paid in cash. You do not receive a payoff for your decision.

14

Follow-up survey

Finally, we would like to ask you some questions.

Age:

Gender: f m

At which faculty are you studying?

Faculty of Management, Economics and Social Science

Law Faculty

Medicine

Philosophical Faculty

Faculty of Mathematics and Natural Sciences

Faculty of Human Sciences

I am not a student.

Field of studies:

Semester:

Nationality:

Which party would you vote for if federal elections were held this Sunday?

CDU/CSU

SPD

Grüne

Die Linke

FDP

AfD

other

How serious are the dangers of climate change, according to your assessment?

very big

fairly big

rather small

very small

I don’t know

15

How would you assess the European climate policy?

very good

good

bad

very bad

I don’t know

Please indicate your agreement with the following statements on a scale from 1 to 7. (1= do

not agree at all … 7= fully agree)

1. I think that due to our way of living we are responsible for many climate problems.

2. In my opinion, Germany can contribute much to the solution of climate problems.

3. The climate problem can only be solved if we all consume less.

4. In the future, we will need more economic growth even if this hurts climate protection.

5. In order to maintain a liveable environment for ourselves and the generations to come, we all

have to become active and start to change our lifestyle.

6. In order to maintain a liveable environment for ourselves and the generations to come, we

particularly need strict and consequent laws.

7. I do not believe that the climate issues can really be solved. Humans think mainly in the short

term, the threats are complicated and there are too many differing interests at play.

8. I behave in a climate-friendly way, even if costs are associated with this for me.

Please indicate your level of agreement with the following statements on a scale from 1 to 7.

(1= I do not agree at all … 7= I fully agree)

9. Persons who voluntarily donate an organ should receive a payment for this.

10. Persons who voluntarily donate blood should receive a payment for this.

Please indicate your level of agreement with the following statements on a scale from 1 to 7


11. Markets cause an unfair distribution of income.

12. Markets lead to an efficient use of resources.

13. Markets require a lot of government control.

16

14. Overall, markets are fair and ethical.

To what religious community do you belong? (Only one answer possible)

Roman-Catholic church

Protestant church (without Free Churches)

A protestant Free Church

Any other Christian religious community

Islam

Judaism

Buddhism

Hinduism

Any other non-Christian religious community

None

How religious are you?

Please give you answer on a scale from 1 to 7. (1 = Not religious at all … 7 = Very religious)

17

2. Instructions CO2 Frame Auction – Producers

General Information

Welcome to our experiment. In this experiment, you can earn money. Your payoff will be handed

out to you upon showing the attached proof of payoff; please take and keep it.




begin on the following page. Afterwards, please make your decisions. All decisions and payoffs

are confidential.

We guarantee that all aspects of the decision situation including payoffs and CO2 emissions will

be implemented exactly in the way described in the following instructions.







In the course of this experiment, you can purchase such a CO2 emission allowance. What your

decision is, and what the consequences of your decision for you and CO2 emissions are is described

in the following.

In this lecture, groups of 10 producers are randomly formed that will each bid in an auction.














18


You are Producer #1

The revenue that you can generate through production of the fictitious good is:

3 Euro

The total number of CO2 emission allowances that may be sold during the auction in your group is

determined by the decision of judges. The judges are participants from another lecture who decide

how many CO2 emission allowances (between 0 and 10) may be sold in the auction.

The auction proceeds as follows:

First, you decide on whether or not to bid in the auction.

If you decide against bidding, you receive a payoff of zero.

If you decide to bid, you state your maximum bid for one CO2 emission allowance in the

next step.

In the auction, we bid on your behalf until you win or until you drop out of the auction

because the other maximum bids were higher.

This means that we start at a price of zero and increase the price of all offered CO2 emission

allowances in 1-cent increments until only as many producers are still bidding as there are

CO2 emission allowances in the auction. We guarantee that in the event of winning you

will never pay more than is absolutely necessary in order to just outbid your competitors.

Therefore, you should state your personal limit as the maximum bid, i.e. the highest price

you are willing to pay for the CO2 emission allowance.

The price that has to be paid by all winners is then equal to the highest losing maximum

bid (i.e. the maximum bid of the producer who quit the auction last) plus 1 cent.

If you get nothing in the auction, your payoff is zero.

If you have won the auction and bought a CO2 emission allowance, you use it for production. You

then receive a payment equal to your revenue for the fictitious good minus the price for the CO2

emission allowance. It follows that

Your profit = 3 Euro


Please note the following: if you buy a CO2 emission allowance in this experiment, indeed one ton

of CO2 will be expelled into the atmosphere with this emission allowance.

19

Each of the 10 maximum possible CO2 emission allowances that is not bought or not approved for

sale by the judges will be destroyed by us, and one ton of CO2 less will be emitted for each unused

emission allowance.




Your decisions:

Please indicate now if you want to make a maximum bid for one CO2 emission allowance:

_____ Yes, I want to make a maximum bid for one CO2 emission allowance and participate in the

auction.

_____ No, I do not want to make a maximum bid for one CO2 emission allowance and I do not

want to participate in the auction.

If you want to make a bid for one CO2 emission allowance, please indicate your maximum bid

in Euro:

My maximum bid for the CO2 emission allowance is:

________ Euro.

Subsequent to the lecture one week after this experiment (see the date on your proof of payoff that

is attached), the producers who bought a CO2 emission allowance in the auction and used it for

production receive their profit in cash. Please make sure that you keep the proof of payoff and that

you are able to show it to the experimental helpers next week after the lecture.

20

Follow-up survey


Age:

Gender: f m



Law Faculty

Medicine




I am not a student.

Field of studies:

Semester:

Nationality:

Are you visiting one of the following lectures this semester?

General Chemistry (Prof. Dr. Ruschewitz)

Yes No

General Chemistry for students of natural sciences (Prof. Dr. Klein)

Yes No

Introduction to educational sciences (Prof. Dr. Zirfas)

Yes No

Introduction to Macroeconomics (Prof. Dr. Funk)

Yes No

Introduction to the comparative analysis of political institutions (Prof. Dr. Kaiser)

Yes No

Introduction to Microeconomics (Prof. Dr. Gürtler)

Yes No

Introduction to Microeconomics (Prof. Dr. Sutter)

Yes No

Motivation and Emotion (Prof. Dr. Unkelbach)

Yes No

Statistics for sociologists (Prof. Dr. Jacob)

Yes No

21


CDU/CSU

SPD

Grüne

Die Linke

FDP

AfD

other


very big

fairly big

rather small

very small

I don’t know


very good

good

bad

very bad

I don’t know














22
















Islam

Judaism

Buddhism

Hinduism


None



23

3. Instructions Price Frame – Judge

General Information

Welcome to our experiment.




begin on the following page. Afterwards, please make your decision. All decisions are treated

confidentially.

We guarantee that all aspects of the decision situation including payoffs and CO2 emissions will

be implemented exactly in the way described in the following instructions.







In the course of this experiment, participants in another lecture at the University of Cologne can

purchase such a CO2 emission allowance. How the participants decide, what your decision is about

and what the consequences of both decisions are for participants and CO2 emissions is described in

the following.

In the other lecture, groups of 10 producers are randomly formed.














24


For the CO2 emission allowances, the producers have to pay a price that may lie between 0 and 13

Euro.

In this experiment, you have the role of a judge. The task of the judges is to decide how high the

price for the emission of one ton of CO2 should be. For each group of 10 producers in the other

lecture, the decision of one judge will be chosen randomly, which then determines the price.

The decision of the producers proceeds as follows:

First, each producer decides on whether or not to buy a CO2 emission allowance.

If a producer decides against buying, he receives a payoff of zero.

If a producer decides to buy, he states his maximum price for one CO2 emission allowance

in the next step.

If his maximum price exceeds or equals the price determined by the judges, the producer

buys one CO2 emission allowance at the determined price.

If his maximum price is lower than the price determined by the judges, the producer does

not buy a CO2 emission allowance.

Therefore, a producer should state his personal limit as the maximum price, i.e. the highest

price he is willing to pay for the emission of one ton of CO2.

If a producer has not bought a CO2 emission allowance, his payoff is zero.

If a producer has bought a CO2 emission allowance, he uses it for production. The producer then

receives a payment equal to his revenue for the fictitious good minus the price for the emission of

one ton of CO2. It follows that:

Profit of the producer = Revenue in Euro

- Price for the emission of one ton of CO2 in Euro

Please note the following: if a producer from the other lecture buys a CO2 emission allowance in

this experiment, indeed one ton of CO2 will be expelled into the atmosphere with this emission

allowance.

Each of the 10 maximum possible CO2 emission allowances that is not bought will be destroyed by

us, and one ton of CO2 less will be emitted for each unused emission allowance.

25




Your decision:

Please indicate now how high the price for the emission of one ton of CO2 should be (please

state a price between 0 and 13 Euro):

The price for the emission of one ton of CO2 is:

________ Euro.

After the lecture, the producers who bought a CO2 emission allowance and used it for production

get their profit paid in cash. You do not receive a payoff for your decision.

26

Follow-up survey


Age:

Gender: f m



Law Faculty

Medicine




I am not a student.

Field of studies:

Semester:

Nationality:


CDU/CSU

SPD

Grüne

Die Linke

FDP

AfD

other


very big

fairly big

rather small

very small

I don’t know

27


very good

good

bad

very bad

I don’t know























28







Islam

Judaism

Buddhism

Hinduism


None



29

4. Instructions Price Frame – Producer

General Information

Welcome to our experiment. Your payoff will be handed out to you upon showing the attached

proof of payoff; please take and keep it.




begin on the following page. Afterwards, please make your decisions. All decisions and payoffs

are treated confidentially.

We guarantee that all aspects of the decision situation including payoffs and CO2 emissions will be

implemented exactly in the way described in the following instructions.







In the course of this experiment, you can purchase such a CO2 emission allowance. What your

decision is, and what the consequences of your decision for you and CO2 emissions are is described

in the following.

In this lecture, groups of 10 producers are randomly formed.














30


You are Producer #1

The revenue that you can achieve through production of the fictional good is:

3 Euro

For the CO2 emission allowance, you have to pay a price that may lie between 0 and 13 Euro. The

price for the emission of one ton of CO2 is determined by the decisions of judges. The judges are

participants of another lecture who decide how high the price should be.

Your decision proceeds as follows:

First, you decide on whether or not to buy a CO2 emission allowance.

If you decide against buying, you receive a payoff of zero.

If you decide to buy, you state your maximum price for one CO2 emission allowance in the

next step.

If your maximum price exceeds or equals the price determined by the judges, you buy one

CO2 emission allowance at the determined price.

If your maximum price is lower than the price determined by the judges, you do not buy a

CO2 emission allowance.

Therefore, you should state your personal limit as the maximum price, i.e. the highest price

you are willing to pay for the emission of one ton of CO2.

If you have not bought a CO2 emission allowance, your payoff is zero.

If you have bought a CO2 emission allowance, you use it for production. You then receive a

payment equal to your revenue for the fictitious good minus the price for the emission of one ton

of CO2. It follows that:

Your profit = 3 Euro


Please note the following: if you buy a CO2 emission allowance in this experiment, indeed one ton

of CO2 will be expelled into the atmosphere with this emission allowance.

Each of the 10 maximum possible CO2 emission allowances that is not bought will be destroyed by

us, and one ton of CO2 less will be emitted for each unused emission allowance.

31




Your decisions:

Please indicate now if you want to state a maximum price for the emission of one ton of CO2:

_____ Yes, I want to state a maximum price to buy a CO2 emission allowance.

_____ No, I do not want to state a maximum price and do not want to buy a CO2 emission

allowance.

If you want to state a maximum price, please indicate your value in Euro:

My maximum price is:

________ Euro.

Subsequent to the lecture one week after this experiment (see the date on your proof of payoff that

is attached), the producers who bought a CO2 emission allowance and used it for production receive

their profit in cash. Please make sure that you keep the proof of payoff and that you are able to

show it to the experimental helpers next week after the lecture.

32

Follow-up survey


Age:

Gender: f m



Law Faculty

Medicine




I am not a student.

Field of studies:

Semester:

Nationality:

Are you visiting one of the following lectures this semester?

General Chemistry (Prof. Dr. Ruschewitz)

Yes No

General Chemistry for students of natural sciences (Prof. Dr. Klein)

Yes No

Introduction to educational sciences (Prof. Dr. Zirfas)

Yes No

Introduction to Macroeconomics (Prof. Dr. Funk)

Yes No

Introduction to the comparative analysis of political institutions (Prof. Dr. Kaiser)

Yes No

Introduction to Microeconomics (Prof. Dr. Gürtler)

Yes No

Introduction to Microeconomics (Prof. Dr. Sutter)

Yes No

Motivation and Emotion (Prof. Dr. Unkelbach)

Yes No

Statistics for sociologists (Prof. Dr. Jacob)

Yes No

33


CDU/CSU

SPD

Grüne

Die Linke

FDP

AfD

other


very big

fairly big

rather small

very small

I don’t know


very good

good

bad

very bad

I don’t know














34
















Islam

Judaism

Buddhism

Hinduism


None



pricing externalities and moral behaviour10.1038/s41893-020-055… · axel ockenfels 1, peter...

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