Permit market auctions with allowance reserves

Peyman Khezr and Ian MacKenzie

International Journal of Industrial Organization, 2018, vol. 61, issue C, 283-306

Abstract: This article investigates multi-unit uniform-price auctions with allowance reserves, where a fixed quantity of units is supplemented by an additional supply reserve. The reserve automatically releases units if a sufficiently high price is triggered. This mechanism is commonly used in pollution permit auctions. The main justification for implementing an allowance reserve is to assist in cost containment. We show—paradoxically—that incorporating an allowance reserve into a permit auction may increase the clearing price. This has implications for all major cap-and-trade markets, including the US Regional Greenhouse Gas Initiative.

Keywords: Multi-unit auction; Pollution permit; Allowance reserve (search for similar items in EconPapers)
JEL-codes: D44 L50 Q52 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Related works:
Working Paper: Permit Market Auctions with Allowance Reserves (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:61:y:2018:i:c:p:283-306

DOI: 10.1016/j.ijindorg.2018.09.005

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