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An Allocatively Efficient Auction Market for Payment Entitlements?

  • Kurt Nielsen

    ()

    (Department of Food and Resource Economics, University of Copenhagen)

  • Jesper Troelsgaard Nielsen

    (The Danish National Bank)

Registered author(s):

    We discuss the allocative efficiency of the market for the so-called Payment Entitlements that resulted from EU regulation no 796/2004 of the European agricultural policy. In particular we consider the existing market in Denmark and discuss the design of an allocative efficient auction market. The complexity of the market follows directly from initial construction of the payment entitlements, which resulted in a very large number of different payment entitlements. Although the valuation of the different payment entitlements are highly interrelated, they are separate goods that should be priced separately. We show how this complexity makes an allocative efficient auction market practically impossible and we suggest a simplified auction market that can improve the pricing and the transparency on the market for payment entitlements.

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    File URL: http://okonomi.foi.dk/workingpapers/MSAPpdf/MSAP2010/MSAP_WP03_2010.pdf
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    Paper provided by University of Copenhagen, Department of Food and Resource Economics in its series MSAP Working Paper Series with number 03_2010.

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    Length: 19 pages
    Date of creation: Mar 2010
    Date of revision:
    Handle: RePEc:foi:msapwp:03_2010
    Contact details of provider: Web page: http://www.ifro.ku.dk/english/

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    10. Wolfers, Justin & Zitzewitz, Eric, 2004. "Prediction Markets," Research Papers 1854, Stanford University, Graduate School of Business.
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