Consignment auctions revisited

Yun Liu () and Bowen Tan

Economics Letters, 2021, vol. 203, issue C

Abstract: This paper studies the consignment auction as an allocation mechanism for emission permits among polluting firms. By assuming firms have non-increasing marginal values for the permits and linear bid functions, we characterize the linear equilibrium in a divisible consignment auction with positive trading volumes and a unique equilibrium price. We further compare the consignment auction with its uniform-price counterpart. We show that as firms acquire revenues from selling their consigned permits, they have incentives to overstate demands, which results in a higher equilibrium price in a consignment auction than in a uniform-price auction; nevertheless, the ex post efficiency ranking of these two auctions are generally ambiguous. Our results suggest that the non-trade equilibrium of Khezr and MacKenzie (2018) only appears when firms have a constant marginal value.

Keywords: Cap-and-trade; Consignment; Uniform-price auction (search for similar items in EconPapers)
JEL-codes: D44 Q52 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:203:y:2021:i:c:s0165176521001245

DOI: 10.1016/j.econlet.2021.109847

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