A Simple Auction Mechanism for the Optimal Allocation of the Commons
American Economic Review
vol. 98,
no. 1, March 2008
(pp. 496-518)
Abstract
Efficient regulation of the commons requires information about the regulated firms that is rarely available to regulators (e.g., cost of pollution abatement). This paper proposes a simple mechanism that implements the first-best for any number of firms: a uniform price, sealed-bid auction of an endogenous number of (transferable) licenses with a fraction of the auction revenues given back to firms. Paybacks, which rapidly decrease with the number of firms, are such that truth-telling is a dominant strategy regardless of whether firms behave non-cooperatively or collusively. The mechanism also provides firms with incentives to invest in socially optimal R&D. (JEL D44, L51, Q21)Citation
Montero, Juan-Pablo. 2008. "A Simple Auction Mechanism for the Optimal Allocation of the Commons." American Economic Review, 98 (1): 496-518. DOI: 10.1257/aer.98.1.496JEL Classification
- D44 Auctions
- L51 Economics of Regulation