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Experimental Economics Research at McMaster University

McMaster University has been an active centre for laboratory experimentation in economics since 1986, when Stuart Mestelman and Douglas Welland began a systematic investigation of advance production in auction markets. A computerized laboratory was established in 1993, funded in large part by a Tri-Council Eco-Research Grant. This experimental economics research program has given rise to more than 50 publications (in print or forthcoming) and an ongoing stream of works in progress.

A central theme on the work related to environmental regulation is the interplay of market power and the design of institutions for emissions trading. In early work, Muller and Mestelman demonstrated the high efficiency of trading in shares (which permit trading in future emissions) and the price-stabilizing effects of permit banking. Later work with Godby and Spraggon (Ph.D. students) established that monopolists can effectively exercise their power in emissions trading markets, even under the pro-competitive conditions of a double auction. More recent emissions trading research with Buckley(a Ph.D. student), funded by SSHRC, investigates whether open-market, baseline-and-credit trading plans, as had been proposed by the government of Canada, will inefficiently expand output in regulated industries, relative to cap-and-trade plans which have more recently been recommended by many of the Canadian provinces.

A second theme concerns common property resources. Muller and Vickers (an undergraduate) investigated the role of communication when CPRs are subject to probabilistic destruction while Moir (a Ph.D. student) studies the roles played by monitoring and sanctioning non-cooperative behaviour. More recent research with Buckley and Schott (a Post-Doc Fellow) investigates whether the incentive for over-exploitation of common pool resources can be offset by incentives for shirking implied by team production. This work has been extended further with the inclusion of Zhang (a Post-Doc Fellow) to the team as the role of communication on the success of output sharing is studied. Other research concerns enforcement of environmental regulations, specifically alternative regulatory plans for non-point pollution sources (Spraggon) and cost-minimizing approaches to inspection (with J. Clark of University of Canterbury).

A third research theme concerns the voluntary provision of public goods, a topic closely related to common property resources. A series of papers by Chan, Mestelman and Muller and Godby and Moir have investigated the role of heterogeneity in tastes and endowment in the context of interior optima and Mestelman and various co-authors have investigated the role of value orientation in public goods contributions and on trust and reciprocity, research and development as a public input and volunteering a public service.

A fourth and most recent research theme addresses issues of funding and financing in health care. This work is funded by CIHR and brings together a team of public economists (Cuff, Nuscheler), health economics (Hurley, Grignon) and experimentalists (Buckley, Mestelman and Muller). One of the major initiatives in this area is to evaluate the impact of the introduction of private health care into an environment characterized by public health care similar to that in Canada.

Finally, a great deal of research at the laboratory defies easy categorization. This research includes papers on order of play and forward induction in game theory (Muller and Sadanand), the behaviour of auditors (Mestelman and Shehata), responses to wage taxation (Sillimaa), speculation in currency markets (Childs), the role of middlemen and system supply contracts in gas markets (Bloemhof), the impact of productivity shocks on effort and wages in efficiency-wage environments (Mestelman and Scarth) and the role of social value orientation and risk on trust and reciprocity (Kanagaretnam, Mestelman, Nainar and Shehata). Most of the experiments run in the laboratory have been custom-programmed. Recent experiments were developed using windows socket components in the Borland Delphi development environment and current projects utilize Uri Fischbacher' Z-Tree software.