Abstract

Experiments are used to examine the performance of tradable disturbance permits (TDPs) for meeting old-growth targets on public forest land. TDPs are an allowance-based cap-and-trade system for rights to disturb forest for development of timber and energy resources. Treatments compare three market institutions for permit allocation: second-price sealed-bid (SPSB) auction and grandfathering permits to the forest sector with a call or double-auction resale market. The large size of the forest sector creates opportunities for strategic interactions. Additional treatments include banking, uncertainty from forest fires, and adaptive caps. Grandfathering to the forest sector with a double-auction resale market outperformed the SPSB auction, alleviating concerns about market power. Without fire, banking had a negative effect on energy firms and total market surplus. Adaptive caps increased permits during low-fire seasons with a positive effect on surplus to energy firms and total market surplus.