An Experimental Investigation of Repeated Auctions and Secondary Market Trading in Emissions Markets with Bankable AllowancesNovember 2010
We report data from laboratory emissions allowance markets in which allowances do not expire and can be banked between compliance periods. These periods consist of a sealed bid auction, trading, and then compliance. The markets consist of multiple sequential compliance periods. We observe (1) market prices reflect an expectation of future market prices, not underlying equilibrium; (2) allowance banking increases with uncertainty; and (3) the secondary market—not the auction—is the primary mechanism of overall market efficiency. Contrary to our hypotheses, we also find (4) no efficiency difference resulting from the use of a uniform price or discriminative price auction and (5) no price or efficiency differences resulting from differing bid reporting rules after the auctions.