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Assigning pollution permits: are uniform auctions efficient?

Author

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  • Francisco Alvarez

    (Universidad Complutense Madrid)

  • Cristina Mazón

    (Universidad Complutense Madrid)

  • Francisco Javier André

    (Universidad Complutense Madrid)

Abstract

We study the efficiency of the uniform auction as an allocation mechanism for emission permits among polluting firms. In our model, firms have private information about their abatement costs, which differ across firms and across units, and bidders’ demands are linear. We show that there is a continuum of interior Bayesian Nash equilibria, and only one is efficient, minimizing abatement costs. We find that the existence of many bidders is not a sufficient condition to guarantee an efficient equilibrium in the uniform auction. Additionally, bidders’ types have to be uncorrelated.

Suggested Citation

  • Francisco Alvarez & Cristina Mazón & Francisco Javier André, 2019. "Assigning pollution permits: are uniform auctions efficient?," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 67(1), pages 211-248, February.
    • Handle: RePEc:spr:joecth:v:67:y:2019:i:1:d:10.1007_s00199-017-1089-1
    DOI: 10.1007/s00199-017-1089-1
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    Cited by:

    1. Liu, Yun & Tan, Bowen, 2021. "Consignment auctions revisited," Economics Letters, Elsevier, vol. 203(C).
    2. Khezr, Peyman & MacKenzie, Ian A., 2021. "Revenue and efficiency in pollution permit allocation mechanisms," Energy Economics, Elsevier, vol. 93(C).
    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. Peyman Khezr & Ian A. MacKenzie, 2021. "An allocatively efficient auction for pollution permits," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 78(4), pages 571-585, April.
    5. Gino Loyola, 2021. "Effects of competition in first-price auctions," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 71(4), pages 1527-1567, June.

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    More about this item

    Keywords

    Emission permits; Uniform auction; Efficiency; Incomplete information simultaneous games;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis

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