Price Discovery in Emissions Permit Auctions
AbstractAuctions are increasingly being used to allocate emissions allowances (â€œpermitsâ€) 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 comparably good for uniform-price sealed-bid auctions and for multi-round clock auctions, with or without end-of-round information about excess demand. More price inertia is observed for â€œpay as bidâ€ (discriminatory) auctions, especially for a continuous discriminatory format in which bids could be changed at will during a pre-specified time window, in part because â€œsnipingâ€ in the final moments blocked the full effect of the demand shock.
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Bibliographic InfoPaper provided by Center for Economic and Policy Studies in its series Working Papers with number 2010-01.
Date of creation: 05 Apr 2010
Date of revision:
auction; greenhouse gases; price discovery; cap and trade; emission 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
- Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters
- Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-05-22 (All new papers)
- NEP-ENE-2010-05-22 (Energy Economics)
- NEP-ENV-2010-05-22 (Environmental Economics)
- NEP-EXP-2010-05-22 (Experimental Economics)
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