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We compare allocation rules in uniform price divisible-good auctions. Theoretically, a “standard allocation rule (STANDARD)” and a “uniform allocation rule (UNIFORM)” admit different types of low-price equilibria, which are eliminated by a “hybrid allocation rule (HYBRID).” We use a controlled laboratory experiment to compare the empirical performances of these allocation rules.

We conduct three-bidder uniform price divisible-good auctions varying the different allocation rules (standard, uniform, or hybrid) and whether or not explicit communication between bidders is allowed. For the case where explicit communication is allowed we also study six-bidder auctions.

We find that prices are similar across allocation rules. Under all three allocation rules, prices are competitive when bidders cannot explicitly communicate. With explicit communication, prices are collusive, and we observe collusive prices even when collusive agreements are broken. Collusive agreements are particularly fragile when the gain from a unilateral deviation is larger, and an implication of this is that collusive agreements are more robust under STANDARD.

We do not find conclusive evidence of differences in performance among allocation rules. However, there is suggestive evidence that STANDARD may be more vulnerable to collusion.

Divisible-good uniform price auctions are used in financial markets, but it is not possible to use naturally occurring data to test how alternatives to the standard format would perform. Using laboratory methods we provide an initial test of alternative allocation rules.

To transform donations “in kind” into cash, charities of all sizes use auctions and raffles. Despite this, neither the theory nor the practice of efficient fund-raising – and, in particular, charity auctions – has received sufficient attention from economists, especially the fact that participation in fund-raisers is endogenous. We describe, in detail, the design and implementation of an experiment to examine 15 charity auction mechanisms. While some of the mechanisms have already received attention from both theorists and empiricists, ours is the first comprehensive examination of all existing mechanisms and the first to explore the potential of a few new formats. Our analysis focuses on participation differences among the formats and how theory and supplemental survey data can help explain some of these differences.

Purpose – This study constitutes a first attempt to experimentally test the performance of a 100% auction versus a 100% free allocation of CO2 permits under the rules and parameters that mimic the EU ETS (imperfect competition, uncertainty in emissions' control, and allowing banking), with environmental targets more restrictive than the current ones but foreseeable for the near future.

Methodology/approach – Two experimental treatments were run to achieve our goal. Both included the rules and the parameters that parallel the EU ETS structure, the only difference being the rule for the primary allocation of permits.

Findings – Our experimental results indicate that the EU ETS has the potential to reduce CO2 emissions, achieving targets considerably more restrictive than the current ones at high efficiency levels, both with auctioned and free emission permits.

Practical implications – Concerns about undue scarcity, and corresponding high prices, in secondary markets generated by a primary auction market are not warranted under the proposed dynamic auction format. This adds arguments favoring auctioning over grandfathering as the rule for the initial allocation of emission permits in the EU ETS.

Originality/value of chapter – This study implements a theoretically appropriate auction format for the primary allocation of emission permits (the Ausubel (2004) auction) and incorporates a first attempt to include in the analysis measures of the risk preferences of subjects participating in emission permits experiments. These characteristics are for the first time implemented under a complex experimental design (including uncertainty of emission abatement, and banking), trying to parallel the EU ETS trading environment.

We present results of several experiments that deal with endogenous entry in auctions and auction valuation. One observation that is constant across all the experiments we report is that laboratory subjects have a difficult time evaluating potential gains from auctions. Even after they are given some experience with particular auctions, the uncertainty inherent in the auctions (the probability of winning as well as the potential gains from winning) makes it difficult for subjects to compare different auction mechanisms. This highlights the need for new experimental procedures to be used for testing theories that involve endogenous auction entry in the laboratory.

In private values settings, the Wickrey-Clarke-Groves (VCG) mechanism leads to efficient auction outcomes, while the theoretical properties of the Simultaneous Ascending (SA) auction are not well understood. This leads us to compare the properties of an SA and a VCG auction in an experimental setting with private values for multiple objects having complementarities. Statistically, we find little to distinguish the two auctions with both auction forms achieving more than 98% efficiency and extracting roughly 95% of the available surplus. Finally, in contrast to experimental results in single object VCG settings, the theoretical prediction of demand revelation in the multiple object VCG auction is largely supported in our experiments.

Objective – This chapter examines the performance of the market to discover efficient equilibrium under alternative auction designs.

Background – Auctions are increasingly being used to allocate emissions allowances (“permits”) for cap and trade and common-pool resource management programs. These auctions create thick markets that can provide important information about changes in current market conditions.

Methodology – This chapter uses experimental methods to examine the extent to which the predicted increase in the Walrasian price due to a shift in willingness to pay (perhaps due to a shift in costs of pollution abatement) is reflected in observed sales prices under alternative auction formats.

Results – Price tracking is comparably good for uniform-price sealed-bid auctions and for multi-round clock auctions, with or without end-of-round information about excess demand. More price inertia is observed for “pay as bid” (discriminatory) auctions, especially for a continuous discriminatory format in which bids could be changed at will, in part because “sniping” in the final moments blocked the full effect of the demand shock.

Conclusion – Uniform-price auctions (clock and sealed-bid uniform-price, and continuous uniform-price) generate changes in purchase prices that are reasonably close to predicted changes. There is some evidence of tacit collusion causing prices to be too low relative to predictions in most cases. The worst price tracking was observed for discriminatory auctions.

Application – Uniform-price auctions appear to perform at least as well as other auction designs with respect to discovery of efficient market prices when there are unexpected and unannounced changes in willingness to pay for permits.

We review the experimental evidence on risk aversion in controlled laboratory settings. We review the strengths and weaknesses of alternative elicitation procedures, the strengths and weaknesses of alternative estimation procedures, and finally the effect of controlling for risk attitudes on inferences in experiments.

In this article, we survey experiments that are directly related to monetary policy and central banking. We argue that experiments can also be used as a tool for central bankers for bench testing policy measures or rules. We distinguish experiments that analyze the reasons for non-neutrality of monetary policy, experiments in which subjects play the role of central bankers, experiments that analyze the role of central bank communication and its implications, experiments on the optimal implementation of monetary policy, and experiments relevant for monetary policy responses to financial crises. Finally, we mention open issues and raise new avenues for future research.

Traditional auction theory assumes that bidders possess values defined solely on the auctioned object. There may, however, be cases in which bidders possess preferences over the revenue achieved by the auctioneer. We present here a comprehensive framework of price-preference valuations, unifying several phenomena ranging from preference for charitable giving to shill bidding. We compare expected efficiency and revenue of first- and second-price auctions for some specific cases of key interest. We also incorporate heterogeneous bidder preferences and examine the effects of mis-specified beliefs and show that both are crucial for understanding these situations.

Purpose — The main objective of this survey is to collect data for the development of six models in a freight modeling framework. The framework aims to simulate the interactions between shippers and carriers in a freight market.

Methodology/approach — A web-based survey was designed using stated preference methods and experimental auctions, to collect information about shipper and carrier behavior when facing hypothetical situations. Hypothetical situations were constructed using information collected during the survey.

Findings — The modeling results are available for one model, the carrier selection model. In this model, data were collected using stated preference (SP) methods. Nine SP designs were developed using D-designs and an approach to minimize the nonattendance problem. A multinomial probit model was used. No bias was found due to the position of alternatives on the screen, signs of the parameters are as expected, and level of service attributes are relevant in the carrier selection process.

Research limitations/implications — The final response rate was small (about 9%) which is not uncommon in surveys with freight managers. This response rate might result in nonresponse bias of the estimates, which is the subject of future research.

Practical implications — Since freight transport is the output of a freight market, the application of the freight modeling framework presented in this chapter has potential to improve forecasts of freight flows.

Originality/value of chapter — To the best of our knowledge, the survey presented in this chapter consists of an innovative data collection procedure for the development of an original freight modeling framework.