London and New York are the world's pre-eminent financial centers. They are essential in processing the financial transactions of the global economy. The circumstances that have given rise to and maintained the preeminence of these centers are well explored in the literature. Less attention has been paid to the importance of these financial centers in organizing the complementary institutions, services, and products of functional and developing markets. This article looks at the role of London and New York, particularly the complementarity of exiting financial infrastructure, in developing a new carbon market. I argue that developing a market from existing financial infrastructure through complementarities is more efficient because it economizes on sunk costs, relies on the marginal pricing of new initiatives, and generally reduces the costs of infrastructure development. Therefore, new markets are best constructed using existing market infrastructure or by developing complementary processes within existent market systems. I investigate three levels of complementarity between (existent and new) markets and within the new carbon market: the complementarity of expertise and information, the complementarity of institutions and services, and the complementarity of market systems. Case studies constructed from expert interviews conducted with banks, brokerages, intermediaries, legal firms, consultancies, and wire services in London and New York are used to support the argument. This paper concludes by commenting on the significance of the financial service centers (geography) where the market is developed.
{"title":"The Developing Carbon Financial Service Industry: Expertise, Adaptation and Complementarity in London and New York","authors":"Janelle Knox‐Hayes","doi":"10.2139/ssrn.1124125","DOIUrl":"https://doi.org/10.2139/ssrn.1124125","url":null,"abstract":"London and New York are the world's pre-eminent financial centers. They are essential in processing the financial transactions of the global economy. The circumstances that have given rise to and maintained the preeminence of these centers are well explored in the literature. Less attention has been paid to the importance of these financial centers in organizing the complementary institutions, services, and products of functional and developing markets. This article looks at the role of London and New York, particularly the complementarity of exiting financial infrastructure, in developing a new carbon market. I argue that developing a market from existing financial infrastructure through complementarities is more efficient because it economizes on sunk costs, relies on the marginal pricing of new initiatives, and generally reduces the costs of infrastructure development. Therefore, new markets are best constructed using existing market infrastructure or by developing complementary processes within existent market systems. I investigate three levels of complementarity between (existent and new) markets and within the new carbon market: the complementarity of expertise and information, the complementarity of institutions and services, and the complementarity of market systems. Case studies constructed from expert interviews conducted with banks, brokerages, intermediaries, legal firms, consultancies, and wire services in London and New York are used to support the argument. This paper concludes by commenting on the significance of the financial service centers (geography) where the market is developed.","PeriodicalId":202121,"journal":{"name":"EIBFIN: Emissions Trading (Sub-Topic)","volume":"21 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122110537","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Markus Wråke, Erica Myers, Svante Mandell, Charles A. Holt, D. Burtraw
An important feature in the design of an emissions trading program is how emissions allowances are initially distributed into the market. In a competitive market the choice between an auction and free allocation should, according to economic theory, not have any influence on firms’ production choices nor on consumer prices. However, many observers expect the method of allocation to affect product prices. This paper reports on the use of experimental methods to investigate behavior with respect to how prices will be determined under a cap-and-trade program. Participants initially display a variety of pricing strategies. However, given a simple economic setting in which earnings depend on this behavior, we find that subjects learn to consider the value of allowances and overall behavior moves toward that predicted by economic theory.
{"title":"Pricing Strategies Under Emissions Trading: An Experimental Analysis","authors":"Markus Wråke, Erica Myers, Svante Mandell, Charles A. Holt, D. Burtraw","doi":"10.2139/ssrn.1319935","DOIUrl":"https://doi.org/10.2139/ssrn.1319935","url":null,"abstract":"An important feature in the design of an emissions trading program is how emissions allowances are initially distributed into the market. In a competitive market the choice between an auction and free allocation should, according to economic theory, not have any influence on firms’ production choices nor on consumer prices. However, many observers expect the method of allocation to affect product prices. This paper reports on the use of experimental methods to investigate behavior with respect to how prices will be determined under a cap-and-trade program. Participants initially display a variety of pricing strategies. However, given a simple economic setting in which earnings depend on this behavior, we find that subjects learn to consider the value of allowances and overall behavior moves toward that predicted by economic theory.","PeriodicalId":202121,"journal":{"name":"EIBFIN: Emissions Trading (Sub-Topic)","volume":"2 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2008-12-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"117149568","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2006-06-01DOI: 10.1111/j.1468-0106.2006.00307.x
N. Buckley, Stuart Mestelman, R. A. Muller
Two approaches to emissions trading are cap-and-trade, in which an aggregate cap on emissions is distributed in the form of emission allowances and baseline-and-credit, in which firms earn emission reduction credits for emissions below their baselines. Theoretical considerations suggest the long-run equilibria of the two plans will differ if baselines are proportional to output, because a variable baseline is equivalent to an output subsidy. To test this prediction we have developed a computerized environment in which subjects representing firms can adjust both their emission rates (per unit output) and capacity levels. Subjects buy or sell emission rights (allowances or credits) in a sealed bid call auction. The demand for output is simulated. All decisions are tracked through a double-entry bookkeeping system. This environment is to be used to compare short and long run responses to the alternative trading methods. Initial experiments in this environment will alternately hold emission rate and capacity choice constant. We report on six experimental sessions with variable emissions rates but fixed capacity and two pilot sessions with variable capacity but fixed emission rates.
{"title":"Implications of Alternative Emission Trading Plans: Experimental Evidence","authors":"N. Buckley, Stuart Mestelman, R. A. Muller","doi":"10.1111/j.1468-0106.2006.00307.x","DOIUrl":"https://doi.org/10.1111/j.1468-0106.2006.00307.x","url":null,"abstract":"Two approaches to emissions trading are cap-and-trade, in which an aggregate cap on emissions is distributed in the form of emission allowances and baseline-and-credit, in which firms earn emission reduction credits for emissions below their baselines. Theoretical considerations suggest the long-run equilibria of the two plans will differ if baselines are proportional to output, because a variable baseline is equivalent to an output subsidy. To test this prediction we have developed a computerized environment in which subjects representing firms can adjust both their emission rates (per unit output) and capacity levels. Subjects buy or sell emission rights (allowances or credits) in a sealed bid call auction. The demand for output is simulated. All decisions are tracked through a double-entry bookkeeping system. This environment is to be used to compare short and long run responses to the alternative trading methods. Initial experiments in this environment will alternately hold emission rate and capacity choice constant. We report on six experimental sessions with variable emissions rates but fixed capacity and two pilot sessions with variable capacity but fixed emission rates.","PeriodicalId":202121,"journal":{"name":"EIBFIN: Emissions Trading (Sub-Topic)","volume":"11 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2006-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124632112","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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