Economic Experiments and Environmental Policy

We summarize and review the literature on two types of economic experiments. First, we explore the consequences for environmental policies of the vast body of literature refuting the assumption that humans are concerned only with their own private welfare. We review the literature addressing whether government intervention is always necessary to protect the environment and whether it is always effective in doing so. Second, we discuss the use of experimental laboratories to testbed market solutions to issues in environmental policy. We concentrate on experiments with one- and two-sided markets and on applications in the domains of water allocation and tradable permit systems.