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Consignment auctions revisited

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  • Liu, Yun
  • Tan, Bowen

Abstract

This paper studies the consignment auction as an allocation mechanism for emission permits among polluting firms. By assuming firms have non-increasing marginal values for the permits and linear bid functions, we characterize the linear equilibrium in a divisible consignment auction with positive trading volumes and a unique equilibrium price. We further compare the consignment auction with its uniform-price counterpart. We show that as firms acquire revenues from selling their consigned permits, they have incentives to overstate demands, which results in a higher equilibrium price in a consignment auction than in a uniform-price auction; nevertheless, the ex post efficiency ranking of these two auctions are generally ambiguous. Our results suggest that the non-trade equilibrium of Khezr and MacKenzie (2018) only appears when firms have a constant marginal value.

Suggested Citation

  • Liu, Yun & Tan, Bowen, 2021. "Consignment auctions revisited," Economics Letters, Elsevier, vol. 203(C).
    • Handle: RePEc:eee:ecolet:v:203:y:2021:i:c:s0165176521001245
    DOI: 10.1016/j.econlet.2021.109847
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    Cited by:

    1. Wang, M. & Zhou, P., 2022. "A two-step auction-refund allocation rule of CO2 emission permits," Energy Economics, Elsevier, vol. 113(C).
    2. David C. Mallinson, 2021. "Assessing Outcome-to-Outcome Interference in Sibling Fixed Effects Models," Papers 2109.13399, arXiv.org, revised Nov 2021.
    3. Jae-Do Song & Young-Hwan Ahn, 2021. "Price Discovery of Consignment Auctions for Emission Permits," Energies, MDPI, vol. 14(21), pages 1-13, October.
    4. Wang, Baixue & Duan, Maosheng, 2022. "Consignment auctions of emissions trading systems: An agent-based approach based on China’s practice," Energy Economics, Elsevier, vol. 112(C).

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    More about this item

    Keywords

    Cap-and-trade; Consignment; Uniform-price auction;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects

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