Is Regulation by Milestones Efficiency Enhancing? an Experimental Study of Environmental Protection

Andreas Freytag (Friedrich Schiller University Jena)
Werner Güth (Max Planck Institute of Economics)
Hannes Koppel (Max Planck Institute of Economics)
Leo Wangler (Friedrich Schiller University Jena)

Abstract: Viewing individual contributions as investments in emission reduction we rely on the familiar linear public goods-game to set global reduction targets which, if missed, imply that all payoffs are destroyed with a certain probability. Regulation by milestones does not only impose a final reduction target but also intermediate ones. In our leading example the regulating agency is Mother Nature but our analysis can, of course, be applied to other regulating agencies as well. We are mainly testing for milestone effects by varying the size of milestones in addition to changing the marginal productivity of individual contributions and the probability to lose.

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