Market Behavior in a Tradable Credit Scheme for Sustainable Mobility: Insights from a Lab Experiment

Abstract

Tradable Credit Schemes (TCS) are a promising market-based instrument to manage transport demand and reduce emissions, yet empirical evidence on behavioral responses and market performance remains limited. This study examines individual behavior in a tradable credit market using a lab experiment that captures endogenous price formation and strategic trading within an active central credit market in realistic travel contexts. The results show that a TCS faces important market challenges, as prices exhibited substantial volatility and concentrated trading intensity, suggesting market power and difficulties in achieving a stable equilibrium, although it can also reduce driving and encourage shifts toward lower-emission alternatives. Market performance is strongly influenced by allocation rules, pricing mechanisms, market size, and participant composition, with heterogeneous characteristics contributing to imbalances in trading behavior and price formation. Overall, the study highlights both the potential and design challenges of TCSs, emphasizing the importance of robust market design for effective real-world implementation.