Price discovery in emissions permit auctions

Burtraw, D; Goeree, J; Holt, C; Myers, E; Palmer, K; Shobe, W

Price discovery in emissions permit auctions

Burtraw, D Goeree, J

Holt, C Myers, E Palmer, K Shobe, W

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Publication Type:: Chapter
Citation:: 2011, 14 pp. 11 - 36
Issue Date:: 2011-12-01

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Field	Value	Language
dc.contributor.author	Burtraw, D	en_US
dc.contributor.author	Goeree, J https://orcid.org/0000-0001-9876-3425	en_US
dc.contributor.author	Holt, C	en_US
dc.contributor.author	Myers, E	en_US
dc.contributor.author	Palmer, K	en_US
dc.contributor.author	Shobe, W	en_US
dc.date.issued	2011-12-01	en_US
dc.identifier.citation	2011, 14 pp. 11 - 36	en_US
dc.identifier.uri	http://hdl.handle.net/10453/29913
dc.description.abstract	Objective - This chapter examines the performance of the market to discover efficient equilibrium under alternative auction designs. Background - 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. Methodology - This chapter uses experimental methods to examine the extent to which the predicted increase in the Walrasian price due to a shift in willingness to pay (perhaps due to a shift in costs of pollution abatement) is reflected in observed sales prices under alternative auction formats. Results - Price tracking is comparably good for uniform-price sealed-bid auctions and for multi-round clock auctions, with or without end-of-round information about excess demand. More price inertia is observed for "pay as bid" (discriminatory) auctions, especially for a continuous discriminatory format in which bids could be changed at will, in part because "sniping" in the final moments blocked the full effect of the demand shock. Conclusion - Uniform-price auctions (clock and sealed-bid uniform-price, and continuous uniform-price) generate changes in purchase prices that are reasonably close to predicted changes. There is some evidence of tacit collusion causing prices to be too low relative to predictions in most cases. The worst price tracking was observed for discriminatory auctions. Application - Uniform-price auctions appear to perform at least as well as other auction designs with respect to discovery of efficient market prices when there are unexpected and unannounced changes in willingness to pay for permits.	en_US
dc.relation.isbasedon	10.1108/S0193-2306(2011)0000014004	en_US
dc.subject.classification	Economics	en_US
dc.title	Price discovery in emissions permit auctions	en_US
dc.type	Chapter
utslib.citation.volume	14	en_US
utslib.for	1402 Applied Economics	en_US
pubs.embargo.period	Not known	en_US
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
utslib.copyright.status	closed_access
pubs.publication-status	Published	en_US
pubs.volume	14	en_US

Abstract:

Objective - This chapter examines the performance of the market to discover efficient equilibrium under alternative auction designs. Background - 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. Methodology - This chapter uses experimental methods to examine the extent to which the predicted increase in the Walrasian price due to a shift in willingness to pay (perhaps due to a shift in costs of pollution abatement) is reflected in observed sales prices under alternative auction formats. Results - Price tracking is comparably good for uniform-price sealed-bid auctions and for multi-round clock auctions, with or without end-of-round information about excess demand. More price inertia is observed for "pay as bid" (discriminatory) auctions, especially for a continuous discriminatory format in which bids could be changed at will, in part because "sniping" in the final moments blocked the full effect of the demand shock. Conclusion - Uniform-price auctions (clock and sealed-bid uniform-price, and continuous uniform-price) generate changes in purchase prices that are reasonably close to predicted changes. There is some evidence of tacit collusion causing prices to be too low relative to predictions in most cases. The worst price tracking was observed for discriminatory auctions. Application - Uniform-price auctions appear to perform at least as well as other auction designs with respect to discovery of efficient market prices when there are unexpected and unannounced changes in willingness to pay for permits.

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http://hdl.handle.net/10453/29913