Price Discovery in Emissions Permit Auctions
AbstractAuctions are increasingly being used to allocate emissions allowances (“permits”) for cap and trade and common-pool resource management programs. These auctions create thick markets that can provide important information about changes in current market conditions. This paper reports a laboratory experiment in which half of the bidders experienced unannounced increases in their willingness to pay for permits. The focus is on the extent to which the predicted price increase due to the demand shift is reflected in sales prices under alternative auction formats. Price tracking is good for uniform-price, sealed-bid auctions and for multiround clock auctions, with or without end-of-round information about excess demand. Price inertia is observed for “pay as bid” (discriminatory) auctions, especially for a continuous discriminatory format in which bids could be changed at will during a prespecified time window, in part because “sniping” in the final moments blocked the full effect of the demand shock.
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Bibliographic InfoPaper provided by Resources For the Future in its series Discussion Papers with number dp-10-32.
Date of creation: 03 Jun 2010
Date of revision:
auction; greenhouse gases; price discovery; cap-and-trade; emissions allowances; laboratory experiment;
Other versions of this item:
- C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-06-18 (All new papers)
- NEP-ENE-2010-06-18 (Energy Economics)
- NEP-ENV-2010-06-18 (Environmental Economics)
- NEP-EXP-2010-06-18 (Experimental Economics)
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