Using experimental economics to design a diffuse source salinity credit trade policy

This article reports on the use of experimental economics to guide design of an on-ground trial of a recharge cap and trade scheme that will be implemented in 2005. The policy design process involved identifying potential impediments to functioning of a credit trade policy which could prevent cost-effective and environmentally effective outcomes. Experimental economics was used to test efficacy of policy approaches to overcome identified impediments. The rationale for and basic design of four experiments is outlined. A summary of experimental results is presented as well as a discussion of how experimental results findings influenced the design of the on-ground trial. Conclusions focus on future opportunities and challenges for economists in use of experimental economics to design incentive based policy for diffuse source environmental issues.