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Which performs better under trader settings, double auction or uniform price auction?

  • Koji Kotani
  • Kenta Tanaka
  • Shunsuke Managi
Original Paper
  • 26 Downloads

Abstract

A marketable permit system (MPS) has been suggested as a solution to environmental problems. Although the properties of MPSs under non-trader settings, in which each player is exclusively either a seller or a buyer, are well documented, little research has explored how MPSs perform under trader settings, in which each player can be both a seller and a buyer. We institute two auctions of trader settings in MPS experiments: a double auction (DA) and a uniform price auction (UPA). We then evaluate and compare their performances both with each other and with those under non-trader settings. The main results are as follows: DAs under trader settings perform much worse than do DAs under non-trader settings, whereas UPAs perform well, regardless of the trader and non-trader settings. UPAs are more efficient and generate more stable prices than do DAs under trader settings, and a considerable proportion of trades in DAs under trader settings consist of “flips” that could be considered speculation or errors. Thus, UPAs are likely to work better than DAs under trader settings.

Keywords

Marketable permits Economic experiments Double auction Uniform price auction Non-trader settings Trader settings 

JEL Classification

D44 Q50 C91 

Notes

Acknowledgements

The authors thank anonymous referees, Makoto Kakinaka and Hiroaki Miyamoto for their helpful comments, advice and supports. We are also grateful to the financial supports from the Japan Society for the Promotion of Science (JSPS) as the Grant-in-Aid for Scientific Research B (16H03621), JSPS Specially Promoted Research and Ministry of Environment, Japan (S-16) and Kochi University of Technology.

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Copyright information

© Economic Science Association 2018

Authors and Affiliations

  1. 1.Research Institute for Future DesignKochi University of TechnologyKochi-shiJapan
  2. 2.School of Economics and ManagementKochi University of TechnologyKochi-shiJapan
  3. 3.Urban Institute, Kyusyu UniversityFukuokaJapan
  4. 4.College of BusinessRikkyo UniversityTokyoJapan
  5. 5.Faculty of EconomicsMusashi UniversityTokyoJapan
  6. 6.Departments of Urban and Environmental Engineering, School of EngineeringKyushu UniversityFukuokaJapan

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