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Price Discovery in Emissions Permit Auctions

Author

Listed:
  • Burtraw, Dallas

    (Resources for the Future)

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

    (Resources for the Future)

  • Shobe, William
Abstract
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.

Suggested Citation

  • Burtraw, Dallas & Goeree, Jacob & Holt, Charles & Myers, Erica & Palmer, Karen & Shobe, William, 2010. "Price Discovery in Emissions Permit Auctions," RFF Working Paper Series dp-10-32, Resources for the Future.
    • Handle: RePEc:rff:dpaper:dp-10-32
    as

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    File URL: http://www.rff.org/RFF/documents/RFF-DP-10-32.pdf
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    References listed on IDEAS

    as
    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. Jacob Goeree & Theo Offerman & Randolph Sloof, 2013. "Demand reduction and preemptive bidding in multi-unit license auctions," Experimental Economics, Springer;Economic Science Association, vol. 16(1), pages 52-87, March.
    4. 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.
    5. Ellerman,A. Denny & Joskow,Paul L. & Schmalensee,Richard & Montero,Juan-Pablo & Bailey,Elizabeth M., 2005. "Markets for Clean Air," Cambridge Books, Cambridge University Press, number 9780521023894, September.
      • Ellerman,A. Denny & Joskow,Paul L. & Schmalensee,Richard & Montero,Juan-Pablo & Bailey,Elizabeth M., 2000. "Markets for Clean Air," Cambridge Books, Cambridge University Press, number 9780521660839.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Khezr, Peyman & MacKenzie, Ian A., 2018. "Consignment auctions," Journal of Environmental Economics and Management, Elsevier, vol. 87(C), pages 42-51.
    2. Munnings, Clayton & Morgenstern, Richard D. & Wang, Zhongmin & Liu, Xu, 2016. "Assessing the design of three carbon trading pilot programs in China," Energy Policy, Elsevier, vol. 96(C), pages 688-699.
    3. Haoran He & Yefeng Chen, 2021. "Auction mechanisms for allocating subsidies for carbon emissions reduction: an experimental investigation," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 57(2), pages 387-430, August.
    4. Bizer, Kilian & Henger, Ralph & Meub, Lukas & Proeger, Till, 2014. "The political economy of certificates for land use in Germany: Experimental evidence," University of Göttingen Working Papers in Economics 225, University of Goettingen, Department of Economics.
    5. Alessandra Casella & Adam B. Cox, 2018. "A Property Rights Approach to Temporary Work Visas," The Journal of Legal Studies, University of Chicago Press, vol. 47(S1), pages 195-227.
    6. David F. Perkis & Timothy N. Cason & Wallace E. Tyner, 2016. "An Experimental Investigation of Hard and Soft Price Ceilings in Emissions Permit Markets," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 63(4), pages 703-718, April.
    7. Anabela Botelho & Lígia Costa Pinto & Eduarda Fernandes, 2013. "More on the dynamic Vickrey mechanism for multi-unit auctions: an experimental study on the emission permits initial auction," NIMA Working Papers 53, Núcleo de Investigação em Microeconomia Aplicada (NIMA), Universidade do Minho.
    8. Giuseppe Lopomo & Leslie M. Marx & David McAdams & Brian Murray, 2011. "Carbon Allowance Auction Design: An Assessment of Options for the United States," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 5(1), pages 25-43, Winter.
    9. David McAdams & Giuseppe Lopomo & Leslie Marx & Brian Murray, "undated". "Carbon Allowance Auction Design: An Assessment of Options for the U.S," Working Papers 10-64, Duke University, Department of Economics.
    10. Khezr, Peyman & MacKenzie, Ian A., 2018. "Permit market auctions with allowance reserves," International Journal of Industrial Organization, Elsevier, vol. 61(C), pages 283-306.
    11. Proeger Till & Meub Lukas & Bizer Kilian & Henger Ralph, 2017. "Die Effizienz von Zuteilungsmechanismen bei Flächenzertifikaten zwischen Versteigerung und Grandfathering – experimentelle Evidenz," Zeitschrift für Wirtschaftspolitik, De Gruyter, vol. 66(1), pages 80-109, April.

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    More about this item

    Keywords

    auction; greenhouse gases; price discovery; cap-and-trade; emissions allowances; laboratory experiment;
    All these keywords.

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

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