We explain agents' trading behaviors and market outcomes in the presence of endowment effects intensified by expectations-based loss aversion in carbon cap and trade. Building on Kőszegi and Rabin (2006)’s model with forward-looking reference points, we show how firms' concerns about high future compliance costs (through loss aversion and uncertainty) can cause a gap between Willingness-to-Pay and Willingness-to-Accept for allowances. This leads to limited allowance trading and deviation from the socially desirable paths. The problem can be exacerbated under a substantial proportion of free allocation, a fixed (or inflexible) cap as well as uncertain regulatory ambitions, particularly in emerging economies under a variety of uncertainty. Recognizing the regulator's role in dealing with firms' expectations (or concerns) and facilitating innovation investments, we discuss potential alternative systems (e.g., with auction and flexible supply) for decarbonization that incorporate flexibility in terms of innovation timing and realized costs.

中文翻译：

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碳限额和交易中的禀赋效应、预期和交易行为


我们解释了在碳限额和交易中基于预期的损失厌恶加剧了禀赋效应的情况下，代理人的交易行为和市场结果。基于 Kőszegi 和 Rabin （2006） 的具有前瞻性参考点的模型，我们展示了公司对未来高合规成本的担忧（通过损失厌恶和不确定性）如何导致津贴的支付意愿和接受意愿之间的差距。这导致了有限的津贴交易和偏离社会期望的道路。在相当大比例的自由配置、固定（或不灵活）的上限以及不确定的监管雄心下，这个问题可能会加剧，尤其是在处于各种不确定性下的新兴经济体。认识到监管机构在处理公司的期望（或担忧）和促进创新投资方面的作用，我们讨论了潜在的脱碳替代系统（例如，拍卖和灵活供应），这些系统在创新时间和实现成本方面具有灵活性。