A Simple Auction Mechanism for the Optimal Allocation of the Commons
AbstractEfficient regulation of the commons requires information about the regulated firms that is rarely available to regulators (e.g., cost of pollution abatement). This paper proposes a simple mechanism that implements the first-best for any number of firms: a uniform price, sealed-bid auction of an endogenous number of (transferable) licenses with a fraction of the auction revenues given back to firms. Paybacks, which rapidly decrease with the number of firms, are such that truth-telling is a dominant strategy regardless of whether firms behave non-cooperatively or collusively. The mechanism also provides firms with incentives to invest in socially optimal R&D. (JEL D44, L51, Q21)
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Bibliographic InfoArticle provided by American Economic Association in its journal American Economic Review.
Volume (Year): 98 (2008)
Issue (Month): 1 (March)
Other versions of this item:
- Juan Pablo Montero, 2006. "A Simple Auction Mechanism for the Optimal Allocation of the Commons," Documentos de Trabajo 311, Instituto de Economia. Pontificia Universidad Católica de Chile..
- Juan-Pablo Montero, 2006. "A simple auction mechanism for the optimal allocation of the commons," Working Papers 0608, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
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