Australian Carbon Pollution Reduction Scheme proposed design of tying the penalty rate to the auction price. Compliance … design under the presence of subjects‟ risk preferences might affect compliance incentives, permit price discovery, and … efficiency. In contrast to theory, we find that penalty levels serve as a focal point that indicates compliance costs and affects …

This paper employs a theoretical model to examine compliance incentives and market efficiency under three penalty types … analyse compliance decisions and the efficient penalty level under each penalty type. Firms‟ compliance strategies are … penalty type does not affect compliance decisions provided that the efficient penalty level is applied. Market efficiency is …