Can auctions control market power in emissions trading markets.

Using eight sessions (twenty-four ten-period markets) in a double ABA cross-over design, we demonstrate clear evidence of market power in double-auction emission trading markets (agents who are not constrained to only buy or sell). Conventional theory predicts that in half of the market-power environments monopsony should emerge and in half monopoly should emerge. Market-power outcomes are frequently observed, most often in the form of price discrimination, and most effectively by monopsonists.

Crowding Out Voluntary Contributions to Public Goods

We test the null hypothesis that involuntary transfers for the provision of a public good will completely crowd out voluntary transfers against the warm-glow hypothesis that crowding-out will be incomplete because individuals care about giving. Our design differs from the related design used by Andreoni in considering two levels of the involuntary transfer and a wider range of contribution possibilities, and in mixing groups every period instead of every four periods. We analyse the data with careful attention to boundary effects. We retain the null hypothesis of complete crowding-out in two of three pairwise comparisions, but reject it in favour of incomplete crowding-out in the comparison most closely akin to Andreoni’s design. Thus we confirm the existence of incomplete crowding-out in some environments, but suggest that the warm-glow hypothesis is inadequate in explaining it.

Strategic Manipulation of Pollution Permit Markets: An Experimental Approach

In this paper we employ experimantal economic methods to examine the effect of market structure on the use of marketable emmisions permits. In particular, we ask whether firms can strategically manipulate a product market using marketable emissions permits. Subjects participate in two markets, a permit market and a product market. They use permits to reduce the cost of production of the final goods that they sell in the product market. Four treatments are used to test the effects of initial permit allocation and market structure. The first two treatments explore "simple" manipulation. In this case firms are all price takers in the product market but must compete both in the permit and final product markets, thus opening the potential use of permits as a form of market predation. Results show that in a market with one dominant firm and a number of fringe firms, strategic manipulation occurs repeatedly in the laboratory as the dominant firm uses licenses in an inefficient manner in order to minimize its costs, increase its profits and exclude rivals in the product market. Further these finding indicate, that far from improving market efficiency and decreasing the cost to society of pollution control, implementation of tradable permit markets where there are firms in a position of market power may decrease efficiency.

Asymmetric Error Correction Models for the Oil-Gasoline Price Relationship

The existing literature on price asymmetries does not systematically investigate the sensitivity of the empirical results to the choice of a particular econometric specification. This paper fills this gap by providing a detailed comparison of the three most popular models designed to describe asymmetric price behaviour, namely asymmetric ECM, autoregressive threshold ECM and ECM with threshold cointegration. Each model is estimated on a common monthly dataset for the gasoline markets of France, Germany, Italy, Spain and UK over the period 1985-2003. All models are able to capture the temporal delay in the reaction of retail prices to changes in spot gasoline and crude oil prices, as well as some evidence of asymmetric behaviour. However, the type of market and the number of countries which are characterized by asymmetric oil-gasoline price relations vary across models. The asymmetric ECM yields some evidence of asymmetry for all countries, mainly at the distribution stage. The threshold ECM strongly rejects the null hypothesis of symmetric price behaviour, particularly in the case of France and Germany. Finally, the ECM with threshold cointegration finds long-run asymmetry for each country in the reaction of retail prices to oil price changes