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Price Discovery in Emissions Permit Auctions

  • Burtraw, Dallas

    ()

    (Resources for the Future)

  • Goeree, Jacob
  • Holt, Charles
  • Myers, Erica
  • Palmer, Karen

    ()

    (Resources for the Future)

  • Shobe, William

Auctions are increasingly being used to allocate emissions allowances (“permits”) for cap and trade and common-pool resource management programs. These auctions create thick markets that can provide important information about changes in current market conditions. This paper reports a laboratory experiment in which half of the bidders experienced unannounced increases in their willingness to pay for permits. The focus is on the extent to which the predicted price increase due to the demand shift is reflected in sales prices under alternative auction formats. Price tracking is good for uniform-price, sealed-bid auctions and for multiround clock auctions, with or without end-of-round information about excess demand. Price inertia is observed for “pay as bid” (discriminatory) auctions, especially for a continuous discriminatory format in which bids could be changed at will during a prespecified time window, in part because “sniping” in the final moments blocked the full effect of the demand shock.

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File URL: http://www.rff.org/RFF/documents/RFF-DP-10-32.pdf
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Paper provided by Resources For the Future in its series Discussion Papers with number dp-10-32.

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Date of creation: 03 Jun 2010
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Handle: RePEc:rff:dpaper:dp-10-32
Contact details of provider: Web page: http://www.rff.org

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  1. Porter, David & Rassenti, Stephen & Shobe, William & Smith, Vernon & Winn, Abel, 2009. "The design, testing and implementation of Virginia's NOx allowance auction," Journal of Economic Behavior & Organization, Elsevier, vol. 69(2), pages 190-200, February.
  2. Dallas Burtraw & Jacob Goeree & Charles A. Holt & Erica Myers & Karen Palmer & William Shobe, 2009. "Collusion in auctions for emission permits: An experimental analysis," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 28(4), pages 672-691.
  3. Charles A. Holt & William Shobe & Dallas Burtraw & Karen Palmer & Jacob K. Goeree, 2007. "Auction Design for Selling CO2 Emission Allowances Under the Regional Greenhouse Gas Initiative," Reports 2007-03, Center for Economic and Policy Studies.
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