Experimental simulations of a subsidy system for sustainable production
Report, 2005

A multi-trial duopoly price-setting experiment was conducted to investigate the potential effectiveness of a governmental subsidy system aimed to reduce sales and therefore production of environmentally harmful products. Two levels of a subsidy for unsold units were compared with a control condition without a sub-sidy. The results showed that the subsidies did not erode competition but never-theless led to the setting of higher prices that resulted in fewer sales. In the con-trol condition a price-war led to decreasing prices and increasing sales. The ways in which the proposed subsidy system may be implemented in the transport sec-tor and other sectors are discussed. Specifically, it is proposed that the subsidy system may complement the newly introduced European Emission Trading Scheme.

governmental subsidies

Emission policy

experimental game

sustainable production

market experiment


Lars E. Olsson

University of Gothenburg

M Akiyama

Tommy Gärling

University of Gothenburg

Mathias Petter Gustafsson

University of Gothenburg

Peter Loukopoulos

University of Gothenburg

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