Download This PaperConsignment Auctions Revisited
11 Pages Posted: 19 May 2020 Last revised: 12 Apr 2021
Date Written: March 31, 2021
Abstract
This paper studies the consignment auction as an allocation mechanism for emission permits among polluting firms. By assuming firms have non-increasing marginal values for the permits and linear bid functions, we characterize the linear equilibrium in a divisible consignment auction with positive trading volumes and a unique equilibrium price. We further compare the consignment auction with its uniform-price counterpart. We show that as firms acquire revenues from selling their consigned permits, they have incentives to overstate demands, which results in a higher equilibrium price in a consignment auction than in a uniform-price auction; nevertheless, the ex post efficiency ranking of these two auctions are generally ambiguous. Our results suggest that the non-trade equilibrium of Khezr and MacKenzie (2018) only appears when firms have a constant marginal value.
Keywords: cap-and-trade; consignment; uniform-price auction.
JEL Classification: D44; Q52
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