No SDES-2015-17
Title Which performs better under a trader setting, double auction or uniform price auction?
Author Koji Kotani, Kenta Tanaka and Shunsuke Managi
Abstract A marketable permit system (MPS) has been suggested as solutions to environmental problems. Whereas properties of MPSs in non-trader settings (each player becomes either a seller or a buyer) are well-documented, little is explored about how MPSs perform in trader settings (each player can be both a seller and a buyer). We instituted two auctions of trader settings in MPS experiments: double auction (DA) and uniform price auction (UPA), obtaining the following results: UPAs are more efficient and generate more stable prices than DAs; UPAs induce subjects to more truthfully reveal information about abatement costs for emissions; and a considerable proportion of trades in DAs consist of speculation. Thus, UPAs are likely to work better than DAs in trader settings.
Revised version published in Experimental Economics