Auction Design for the Allocation of Emission Permits in the Presence of Market Power
To the extent that emission permits have been allocated using market mechanisms, this has been done using a sealed-bid auction design, typically with discriminatory prices. However, several authors have recommended the ascending auction format. Basically, two “competing” ascending auction designs have been suggested, the standard ascending auction (with clock or demand schedules), or an alternative ascending-clock implementation of Vickrey-pricing. The latter design was introduced as a response to problems of bid shading under the sealed-bid and the standard ascending auction format. The purpose of this paper is to investigate the allocation of permits under these two alternative mechanisms. The auction process and the resulting market outcome in the presence of oligopolistic competition are simulated. In this setting, it is not obvious that bid shading is the optimal strategy under the standard design, nor is it obvious that sincere bidding is the optimal strategy under the alternative ascending auction design. The alternative auction format makes it less costly to pursue a strategy to increase market shares through the acquisition of emission permits, thus increasing the competitor's costs, leading to overbidding as the optimal strategy. Copyright Kluwer Academic Publishers 2003
Volume (Year): 26 (2003)
Issue (Month): 3 (November)
|Contact details of provider:|| Web page: http://www.springerlink.com/link.asp?id=100263|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Peter Cramton & Suzi Kerr, 2002.
"Tradeable Carbon Permit Auctions: How and Why to Auction Not Grandfather,"
Papers of Peter Cramton
02eptc, University of Maryland, Department of Economics - Peter Cramton, revised 06 May 2002.
- Cramton, Peter & Kerr, Suzi, 2002. "Tradeable carbon permit auctions: How and why to auction not grandfather," Energy Policy, Elsevier, vol. 30(4), pages 333-345, March.
- Cramton, Peter & Kerr, Suzi, 1998. "Tradeable Carbon Permit Auctions: How and Why to Auction, Not Grandfather," Working Papers 197846, University of Maryland, Department of Agricultural and Resource Economics.
- Kerr, Suzi & Cramton, Peter, 1998. "Tradable Carbon Permit Auctions: How and Why to Auction Not Grandfather," Discussion Papers dp-98-34, Resources For the Future.
- Malueg, David A., 1990. "Welfare consequences of emission credit trading programs," Journal of Environmental Economics and Management, Elsevier, vol. 18(1), pages 66-77, January.
- Hanley Hanley, 1992.
"Efficiency and Distributional Aspects of Market Mechanisms in the Control of Pollution: An Empirical analysis,"
842, Queen's University, Department of Economics.
- Hanley, Nick D & Moffatt, Ian, 1993. "Efficiency and Distributional Aspects of Market Mechanisms in the Control of Pollution: An Empirical Analysis," Scottish Journal of Political Economy, Scottish Economic Society, vol. 40(1), pages 69-87, February.
- Nick Hanley & Ian Moffatt, 1992. "Efficiency and Distributional Aspects of Market Mechanisms in the Control of Pollution: An Empirical Analysis," Working Papers Series 92/2, University of Stirling, Division of Economics.
- Cramton, Peter, 1998.
European Economic Review,
Elsevier, vol. 42(3-5), pages 745-756, May.
- Fershtman,C. & de Zeeuw,A., 1995.
"Tradeable Emission Permits in Oligopoly,"
45-95, Tel Aviv - the Sackler Institute of Economic Studies.
- Eftichios Sartzetakis, 1997. "Tradeable emission permits regulations in the presence of imperfectly competitive product markets: Welfare implications," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 9(1), pages 65-81, January.
- Lawrence M. Ausubel & Peter Cramton, 1995. "Demand Reduction and Inefficiency in Multi-Unit Auctions," Papers of Peter Cramton 98wpdr, University of Maryland, Department of Economics - Peter Cramton, revised 22 Jul 2002.
- McAfee, R Preston & McMillan, John, 1987. "Auctions and Bidding," Journal of Economic Literature, American Economic Association, vol. 25(2), pages 699-738, June.
- Wilson, Robert, 1979. "Auctions of Shares," The Quarterly Journal of Economics, MIT Press, vol. 93(4), pages 675-89, November.
- V.V. Chari & Robert J. Weber, 1992. "How the U.S. Treasury should auction its debt," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 3-12.
- Hahn, Robert W, 1984.
"Market Power and Transferable Property Rights,"
The Quarterly Journal of Economics,
MIT Press, vol. 99(4), pages 753-65, November.
- Lawrence M. Ausubel & Peter Cramton, 1997. "Auctioning Securities," Papers of Peter Cramton 98wpas, University of Maryland, Department of Economics - Peter Cramton, revised Mar 1998.
When requesting a correction, please mention this item's handle: RePEc:kap:enreec:v:26:y:2003:i:3:p:385-400. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Guenther Eichhorn)or (Christopher F. Baum)
If references are entirely missing, you can add them using this form.