Vecon Lab Emissions Permit Auction: Introduction

Bidders in these auctions acquire "permits," e.g. emissions allowances or other licenses. Bidding takes place in "rounds," with a cutoff price that is either clock driven or bid driven, and with prices that either increase or decrease (Dutch). Single-round sealed bid procedures and continuous-time formats are also available, with either uniform or "discriminatory" prices. The "shot clock" hybrid starts as an ascending price clock and ends with a single-round first-price "shootout" among those bidders that are still active in the auction when the number of permits requested reaches a target cutoff. Other setup options include asymmetries in costs and permit needs, the presence of permit banking, secondary "spot" markets, a chat room for collusive disucssions, free "grandfathered" permit allocations, and the amount of inforrmation that is revealed after each round of bidding.

This graph shows the effects of an unanticipated demand shift for allowances after the third auction, which caused a change in the Walrasian price prediction (gray line) that was tracked by the clearing prices in a series of clock auctions. This program was used to design auctions for the Regional Greenhouse Gas Initiative (RGGI).

Vecon Lab - December 7, 2022