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Imperfect competition, sequential auctions, and emissions trading: An experimental evaluation

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    Abstract

    This paper reports an experiment that studies the behavior of a monopolist on sequential auction markets for tradable permits. Using six sessions in a triple ABA crossover design, we investigate the cost-effectiveness of permit allocations and the division of trade gains on sequential bid, offer, and double auction markets. The main result is that cost-effectiveness and supra-competitive profits accrued by the monopolist are observed on all the three auction markets.

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    File URL: http://www.ssb.no/a/publikasjoner/pdf/DP/dp280.pdf
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    Bibliographic Info

    Paper provided by Research Department of Statistics Norway in its series Discussion Papers with number 280.

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    Date of creation: Jul 2000
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    Handle: RePEc:ssb:dispap:280

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    Keywords: Market power; tradable permits; and experimental economics.;

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    1. Cason, Timothy N & Gangadharan, Lata, 1998. "An Experimental Study of Electronic Bulletin Board Trading for Emission Permits," Journal of Regulatory Economics, Springer, vol. 14(1), pages 55-73, July.
    2. Hahn, Robert W., 1982. "Market Power and Transferable Property Rights," Working Papers 402, California Institute of Technology, Division of the Humanities and Social Sciences.
    3. Ledyard, John O. & Szakaly, Kristin E., . "Designing Organizations for Trading Pollution Rights," Working Papers 838, California Institute of Technology, Division of the Humanities and Social Sciences.
    4. Jamison, Julian C. & Plott, Charles R., 1997. "Costly offers and the equilibration properties of the multiple unit double auction under conditions of unpredictable shifts of demand and supply," Journal of Economic Behavior & Organization, Elsevier, vol. 32(4), pages 591-612, April.
    5. Joyce, Patrick, 1983. "Information and behavior in experimental markets," Journal of Economic Behavior & Organization, Elsevier, vol. 4(4), pages 411-424, December.
    6. Stavins, Robert, 2004. "Environmental Economics," Discussion Papers dp-04-54, Resources For the Future.
    7. Kirchsteiger, G. & Niederle, M. & Potters, J.J.M., 1998. "The Endogenous Evolution of Market Institutions: An Experimental Investigation," Discussion Paper 1998-67, Tilburg University, Center for Economic Research.
    8. Friedman,Daniel & Sunder,Shyam, 1994. "Experimental Methods," Cambridge Books, Cambridge University Press, number 9780521456821, April.
    9. Montgomery, W. David, 1972. "Markets in licenses and efficient pollution control programs," Journal of Economic Theory, Elsevier, vol. 5(3), pages 395-418, December.
    10. Robert N. Stavins, 1998. "What Can We Learn from the Grand Policy Experiment? Lessons from SO2 Allowance Trading," Journal of Economic Perspectives, American Economic Association, vol. 12(3), pages 69-88, Summer.
    11. Tietenberg, T H, 1990. "Economic Instruments for Environmental Regulation," Oxford Review of Economic Policy, Oxford University Press, vol. 6(1), pages 17-33, Spring.
    12. R. Andrew Muller & Stuart Mestelman & John Spraggon & Rob Godby, 1999. "Can auctions control market power in emissions trading markets," Department of Economics Working Papers 1999-12, McMaster University.
    13. Joskow, Paul L & Schmalensee, Richard & Bailey, Elizabeth M, 1998. "The Market for Sulfur Dioxide Emissions," American Economic Review, American Economic Association, vol. 88(4), pages 669-85, September.
    14. Richard Schmalensee & Paul L. Joskow & A. Denny Ellerman & Juan Pablo Montero & Elizabeth M. Bailey, 1998. "An Interim Evaluation of Sulfur Dioxide Emissions Trading," Journal of Economic Perspectives, American Economic Association, vol. 12(3), pages 53-68, Summer.
    15. Cronshaw, Mark B & Brown-Kruse, Jamie, 1996. "Regulated Firms in Pollution Permit Markets with Banking," Journal of Regulatory Economics, Springer, vol. 9(2), pages 179-89, March.
    16. Smith, Vernon L, 1982. "Microeconomic Systems as an Experimental Science," American Economic Review, American Economic Association, vol. 72(5), pages 923-55, December.
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    Cited by:
    1. Cason, Timothy N. & Gangadharan, Lata & Duke, Charlotte, 2003. "Market Power in Tradable Emission Markets: A Laboratory Testbed for Emission Trading in Port Phillip Bay, Victoria," 2003 Conference (47th), February 12-14, 2003, Fremantle, Australia 57841, Australian Agricultural and Resource Economics Society.

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