On fundamental performance of a marketable permits system in a trader setting: Double auction vs. uniform price auction

Koji Kotani, Kenta Tanaka and Shunsuke Managi

No EMS_2012_08, Working Papers from Research Institute, International University of Japan

Abstract: The marketable permits systems have been widely suggested as a potential solution for environmental problems. A critical feature in the market is that an agent can be both sellers and buyers of permits, so-called "trader settings." Although properties 10 of the marketable permits in non-trader settings are well-documented, little is known in a trader setting, particularly about how different auction mechanisms perform and how much each of them achieves effiency. To answer the questions, we have designed and implemented two different auction mechanisms of trader settings for marketable permits in controlled laboratory experiments: (i) Double auction (DA), and (ii) Uniform price auction (UPA). To the best of our knowledge, this research is the first which designs and implements UPA for marketable permits in a trader setting, and makes a direct comparison with the performance of DA on the same ground. We obtain the following novel results: (1) UPA is more effcient than DA in a trader setting, which is in sharp contrast with the established result in non-trader settings, (2) UPA generates more stable price dynamics and (3) UPA induces subjects to reveal more truthfully about abatement costs for emissions through their trading behaviors. With these results, we conclude that UPA is more likely to work better than DA in a trader setting.

Keywords: Marketable permits; Economic experiments; Double auction; Uniform price auction; Trader settings (search for similar items in EconPapers)
Pages: 28 pages
Date: 2012-08
New Economics Papers: this item is included in nep-ene, nep-env and nep-exp
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https://www.iuj.ac.jp/workingpapers/index.cfm?File=EMS_2012_08.pdf First version, 2012 (application/pdf)

Related works:
Journal Article: Which performs better under trader settings, double auction or uniform price auction? (2019)
Working Paper: Which performs better under a trader setting, double auction or uniform price auction? (2015)
Working Paper: On the fundamental performance of a marketable permit system in a trader setting (2014)
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