IDEAS home Printed from https://ideas.repec.org/a/aea/aecrev/v98y2008i1p496-518.html
   My bibliography  Save this article

A Simple Auction Mechanism for the Optimal Allocation of the Commons

Author

Listed:
  • 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). This paper proposes a simple 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 rapidly decrease with the number of firms, are such that truth-telling is a dominant strategy regardless of whether firms behave non-cooperatively or collusively. The mechanism also provides firms with incentives to invest in socially optimal R&D. (JEL D44, L51, Q21)

Suggested Citation

  • Juan-Pablo Montero, 2008. "A Simple Auction Mechanism for the Optimal Allocation of the Commons," American Economic Review, American Economic Association, vol. 98(1), pages 496-518, March.
    • Handle: RePEc:aea:aecrev:v:98:y:2008:i:1:p:496-518
    Note: DOI: 10.1257/aer.98.1.496
    as

    Download full text from publisher

    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.98.1.496
    Download Restriction: Access to full text is restricted to AEA members and institutional subscribers.
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. William Vickrey, 1961. "Counterspeculation, Auctions, And Competitive Sealed Tenders," Journal of Finance, American Finance Association, vol. 16(1), pages 8-37, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ginger Zhe Jin & Andrew Kato & John A. List, 2010. "That’S News To Me! Information Revelation In Professional Certification Markets," Economic Inquiry, Western Economic Association International, vol. 48(1), pages 104-122, January.
    2. Hongpeng Guo & Zhihao Lv & Junyi Hua & Hongxu Yuan & Qingyu Yu, 2021. "Design of Combined Auction Model for Emission Rights of International Forestry Carbon Sequestration and Other Pollutants Based on SMRA," Sustainability, MDPI, vol. 13(20), pages 1-18, October.
    3. Güth, W., 1997. "Boundedly Rational Decision Emergence -A General Perspective and Some Selective Illustrations-," SFB 373 Discussion Papers 1997,29, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
    4. Lau, Stephanie, 2011. "Investment incentives in bilateral trading," Games and Economic Behavior, Elsevier, vol. 73(2), pages 538-552.
    5. Paul Pezanis-Christou & Abdolkarim Sadrieh, 2003. "Elicited bid functions in (a)symmetric first-price auctions," Working Papers 85, Barcelona School of Economics.
    6. Ewerhart, Christian & Cassola, Nuno & Valla, Natacha, 2012. "Overbidding in fixed rate tenders: The role of exposure risk," Journal of Banking & Finance, Elsevier, vol. 36(2), pages 539-549.
    7. Scott Fay & Robert Zeithammer, 2017. "Bidding for Bidders? How the Format for Soliciting Supplier Participation in NYOP Auctions Impacts Channel Profit," Management Science, INFORMS, vol. 63(12), pages 4324-4344, December.
    8. Franziska Voelckner, 2006. "An empirical comparison of methods for measuring consumers’ willingness to pay," Marketing Letters, Springer, vol. 17(2), pages 137-149, April.
    9. Tafreshian, Amirmahdi & Masoud, Neda, 2022. "A truthful subsidy scheme for a peer-to-peer ridesharing market with incomplete information," Transportation Research Part B: Methodological, Elsevier, vol. 162(C), pages 130-161.
    10. Bogetoft, Peter & Nielsen, Kurt, 2003. "Yardstick Based Procurement Design In Natural Resource Management," 2003 Annual Meeting, August 16-22, 2003, Durban, South Africa 25910, International Association of Agricultural Economists.
    11. Shunda, Nicholas, 2009. "Auctions with a buy price: The case of reference-dependent preferences," Games and Economic Behavior, Elsevier, vol. 67(2), pages 645-664, November.
    12. Shrestha, Ratna K., 2017. "Menus of price-quantity contracts for inducing the truth in environmental regulation," Journal of Environmental Economics and Management, Elsevier, vol. 83(C), pages 1-7.
    13. Palma, Marco A. & Ness, Meghan L. & Anderson, David P., 2015. "Buying More than Taste? A Latent Class Analysis of Health and Prestige Determinants of Healthy Food," 2015 Conference (59th), February 10-13, 2015, Rotorua, New Zealand 202566, Australian Agricultural and Resource Economics Society.
    14. Scott Duke Kominers & Alexander Teytelboym & Vincent P Crawford, 2017. "An invitation to market design," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 33(4), pages 541-571.
    15. Simmons, P., 1996. "Seller surplus in first price auctions," Economics Letters, Elsevier, vol. 50(1), pages 1-5, January.
    16. Monteiro, Paulo Klinger, 2009. "First-price auction symmetric equilibria with a general distribution," Games and Economic Behavior, Elsevier, vol. 65(1), pages 256-269, January.
    17. Tommy Andersson & Lars Ehlers & Lars-Gunnar Svensson & Ryan Tierney, 2022. "Gale’s Fixed Tax for Exchanging Houses," Mathematics of Operations Research, INFORMS, vol. 47(4), pages 3110-3128, November.
    18. Mishra, Debasis & Parkes, David C., 2007. "Ascending price Vickrey auctions for general valuations," Journal of Economic Theory, Elsevier, vol. 132(1), pages 335-366, January.
    19. Nicolas Gruyer & Nathalie Lenoir, 2003. "Auctioning airport slots (?)," Post-Print hal-01021718, HAL.
    20. Kos, Nenad & Messner, Matthias, 2013. "Extremal incentive compatible transfers," Journal of Economic Theory, Elsevier, vol. 148(1), pages 134-164.

    More about this item

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aea:aecrev:v:98:y:2008:i:1:p:496-518. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Michael P. Albert (email available below). General contact details of provider: https://edirc.repec.org/data/aeaaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.