AN EXPERIMENTAL-ANALYSIS OF THE EFFECTIVENESS OF AN ENVIRONMENTAL ASSURANCE BONDING SYSTEM ON PLAYER BEHAVIOR IN A SIMULATED FIRM

It has long been recognized that the present command and control methods for pollution abatement are inefficient. Using market mechanisms for environmental management is a promising alternative to the direct regulatory approach. Market mechanisms are just beginning to appear in U.S. environmental policy. For example, tradable permit schemes are being developed and implemented for some air pollutants under the amended Clean Air Act. Various other forms of taxes and tradable permits have been proposed; however, these systems do not address the large uncertainty inherent in most environmental problems. One mechanism currently being studied to address uncertainty more effectively is a flexible environmental assurance bonding system, designed to incorporate environmental criteria and uncertainty into market incentives. This study uses an experimental approach, employing an interactive computer game/simulation model with human players to examine the effectiveness of the assurance bonding system under varying degrees of uncertainty. An environmental cost efficiency index (ECEI), or profit per unit waste, is used to measure player performance, Preliminary results indicate that players are more successful under the assurance bonding system, in terms of ECEI, than under the simulated current system.