Collusion in Auctions for Emission Permits :

Environmental markets have several institutional features that provide a new context for the use of auctions and which have not been studied previously. This paper reports on laboratory experiments testing three auction forms – uniform and discriminatory price sealed bid auctions and an ascending clock auction. We test the ability of subjects to tacitly or explicitly collude in order to maximize profits. Our main result is that the discriminatory and uniform price auctions produce greater revenues than the clock auction, both without and with explicit communication. The clock appears to be more subject to successful collusion because of its sequential structure and because it allows bidders to focus on one dimension of cooperation (quantity) rather than two (price and quantity). Introduction Environmental policy makers are increasingly using of market-based approaches to regulation of the environment and natural resources. These approaches, long advocated by economists, typically involve the creation of a limited property right for the use of some publicly regulated environmental resource. These " permits "