Skip to main content
Article thumbnail
Location of Repository

Price Discovery in Emissions Permit Auctions

By Dallas Burtraw, Jacob K. Goeree, Charles A. Holt, Erica Myers, Karen Palmer and William Shobe

Abstract

Auctions are increasingly being used to allocate emissions allowances (“permitsâ€) 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 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 during a pre-specified time window, in part because “sniping†in the final moments blocked the full effect of the demand shock.auction, greenhouse gases, price discovery, cap and trade, emission allowances, laboratory experiment

OAI identifier:

Suggested articles

Citations

  1. (2009). Breaking Collusion with Speculation: An Experiment on CO2 Permits Auctions,” presented at the Economic Science Association Meetings,
  2. (2009). Collusion in Auctions for Emissions Permits: An Experimental Analysis,”
  3. (2006). Demand Reduction and Preemptive Bidding in Multi-Unit License Auctions,” Discussion Paper:
  4. (1993). Experimental Economics,
  5. (2000). Markets for Clean Air: The U.S. Acid Rain Program,
  6. (2009). The Design, Testing, and Implementation of Virginia's NOx Allowance Auction,”

To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.