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An Allocatively Efficient Auction Market for Payment Entitlements?


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  • Kurt Nielsen

    (Department of Food and Resource Economics, University of Copenhagen)

  • Jesper Troelsgaard Nielsen

    (The Danish National Bank)

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    We discuss the allocative efficiency of the market for the so-called Payment Entitlements that resulted from EU regulation no 796/2004 of the European agricultural policy. In particular we consider the existing market in Denmark and discuss the design of an allocative efficient auction market. The complexity of the market follows directly from initial construction of the payment entitlements, which resulted in a very large number of different payment entitlements. Although the valuation of the different payment entitlements are highly interrelated, they are separate goods that should be priced separately. We show how this complexity makes an allocative efficient auction market practically impossible and we suggest a simplified auction market that can improve the pricing and the transparency on the market for payment entitlements.

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    Bibliographic Info

    Paper provided by University of Copenhagen, Department of Food and Resource Economics in its series MSAP Working Paper Series with number 03_2010.

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    Length: 19 pages
    Date of creation: Mar 2010
    Date of revision:
    Handle: RePEc:foi:msapwp:03_2010

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    Related research

    Keywords: Interrelated valuation; double auction; walrasian tatonnement; decoupled agricultural subsidies;

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    References listed on IDEAS
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    1. Klemperer, P., 1999. "Auction Theory: a Guide to the Literature," Economics Papers 1999-w12, Economics Group, Nuffield College, University of Oxford.
    2. Amir, Rabah & Sahi, Siddharta & Shubik, Martin & Yao, Shuntian, 1990. "A strategic market game with complete markets," Journal of Economic Theory, Elsevier, Elsevier, vol. 51(1), pages 126-143, June.
    3. McAfee, R. Preston., 1990. "A Dominant Strategy Double Auction," Working Papers, California Institute of Technology, Division of the Humanities and Social Sciences 734, California Institute of Technology, Division of the Humanities and Social Sciences.
    4. Milgrom,Paul, 2004. "Putting Auction Theory to Work," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521536721.
    5. Dan Ariely & George Loewenstein & Drazen Prelec, 2003. ""Coherent Arbitrariness": Stable Demand Curves Without Stable Preferences," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 118(1), pages 73-105, February.
    6. Shih-Fen Cheng & Evan Leung & Kevin M. Lochner & Kevin O'Malley & Daniel M. Reeves & L. Julian Schvartzman & Michael P. Wellman, 2003. "Walverine: A Walrasian Trading Agent," Computational Economics, EconWPA 0302003, EconWPA.
    7. Cheng, John Q & Wellman, Michael P, 1998. "The WALRAS Algorithm: A Convergent Distributed Implementation of General Equilibrium Outcomes," Computational Economics, Society for Computational Economics, Society for Computational Economics, vol. 12(1), pages 1-24, August.
    8. Justin Wolfers & Eric Zitzewitz, 2004. "Prediction Markets," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 18(2), pages 107-126, Spring.
    9. repec:reg:wpaper:259 is not listed on IDEAS
    10. Nautz, D., 1995. "Optimal bidding in multi-unit auctions with many bidders," Economics Letters, Elsevier, Elsevier, vol. 48(3-4), pages 301-306, June.
    11. Mark A. Satterthwaite & Steven R. Williams, 2002. "The Optimality of a Simple Market Mechanism," Econometrica, Econometric Society, Econometric Society, vol. 70(5), pages 1841-1863, September.
    12. Yoon, Kiho, 2001. "The Modified Vickrey Double Auction," Journal of Economic Theory, Elsevier, Elsevier, vol. 101(2), pages 572-584, December.
    13. repec:reg:rpubli:259 is not listed on IDEAS
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