Sellers' Hedging Incentives at EPA's Emission Trading Auction |
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| Authors: | Bouwe R Dijkstra Marco Haan |
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| Institution: | a Faculty of Law, University of Groningen;b Interdisciplinary Institute for Environmental Economics, Bergheimer Strasse 20, 69115, Heidelberg, Germany;Faculty of Economics, Department of Microeconomics, University of Groningen, P.O. Box 800, 9700 AV, Groningen, The Netherlandsf1 |
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| Abstract: | Cason (1993, J. Environ. Econom. Management25, 177–195, doi:10.1006/jeem 1993.1041) argued that the auction which the EPA used in order to start the market for sulfur allowances may reduce the efficiency of the market since it gives sellers an incentive to understate their valuation. In this paper we show that the sellers' incentives are even more perverse than Cason suggested when we take into account that sellers can also submit a bid. We show that sellers have an incentive to set their asking price equal to 0 while simultaneously hedging their bets by submitting a positive bid. |
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| Keywords: | EPA auctions |
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