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A simple auction mechanism for the optimal allocation of the commons

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  • Juan-Pablo Montero

Abstract

Efficient regulation of the commons requires information about the regulated firms that is rarely available to regulators (e.g., cost of pollution abatement). Different mechanisms have been proposed for inducing firms to reveal their private information but for reasons I discuss in the paper, I find these mechanisms of limited use. I propose a much simpler 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 decrease with the number of firms, are such that truth-telling is a dominant strategy regardless of whether firms behave non-cooperatively or collusively.

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Bibliographic Info

Paper provided by Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research in its series Working Papers with number 0608.

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Date of creation: May 2006
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Handle: RePEc:mee:wpaper:0608

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Cited by:
  1. Ollikka, Kimmo & Tukiainen , Janne, 2013. "Central bank liquidity auction mechanism design and the interbank market," Research Discussion Papers 21/2013, Bank of Finland.
  2. Gersbach, Hans & Winkler, Ralph, 2008. "International Emission Permit Markets with Refunding," CEPR Discussion Papers 7035, C.E.P.R. Discussion Papers.
  3. Thierry Bréchet & Pierre M. Picard, 2010. "The Price Of Silence: Markets For Noise Licenses And Airports," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 51(4), pages 1097-1125, November.
  4. Sonia Schwartz, 2009. "Comment distribuer les quotas de pollution ?. Une revue de la littérature," Revue d'économie politique, Dalloz, vol. 0(4), pages 535-568.
  5. Hamilton, Stephen F. & Requate, Till, 2012. "Emissions standards and ambient environmental quality standards with stochastic environmental services," Journal of Environmental Economics and Management, Elsevier, vol. 64(3), pages 377-389.
  6. Enrique Calfucura & Jessica Coria & José Miguel Sánchez, 2008. "Permisos Transables de Emisión en Chile: Lecciones, Desafíos y Oportunidades para Países en Desarrollo," Documentos de Trabajo 347, Instituto de Economia. Pontificia Universidad Católica de Chile..
  7. Suzi Kerr, 2012. "The Economics of International Policy Agreements to Reduce Emissions from Deforestation and Degradation," Working Papers 12_12, Motu Economic and Public Policy Research.
  8. Anabela Botelho & Lígia M.Costa Pinto & Eduarda Fernandes, 2013. "More on the dynamic Vickrey mechanism for multi-unit auctions: an experimental study on the emission permits initial auction," NIMA Working Papers 53, Núcleo de Investigação em Microeconomia Aplicada (NIMA), Universidade do Minho.
  9. Juan Pablo Montero, 2007. "An Auction Mechanism for the Commons: Some Extensions," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 44(130), pages 141-150.
  10. Carbajal, Juan Carlos & McLennan, Andrew & Tourky, Rabee, 2013. "Truthful implementation and preference aggregation in restricted domains," Journal of Economic Theory, Elsevier, vol. 148(3), pages 1074-1101.
  11. Juan-Pablo Montero, 2011. "Cuotas de Pesca y Libre Competencia: Algunas Reflexiones para la Nueva Ley de Pesca," Documentos de Trabajo 405, Instituto de Economia. Pontificia Universidad Católica de Chile..
  12. Berglann, Helge, 2012. "Implementing optimal taxes using tradable share permits," Journal of Environmental Economics and Management, Elsevier, vol. 64(3), pages 402-409.
  13. Olivier Bos & Béatrice Roussillon & Paul Schweinzer, 2013. "Agreeing on Efficient Emissions Reduction," CESifo Working Paper Series 4345, CESifo Group Munich.

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