Working Paper: NBER ID: w5745
Authors: Paul L. Joskow; Richard Schmalensee; Elizabeth M. Bailey
Abstract: Title IV of the Clean Air Act Amendments of 1990 created a market for electric utility emissions of sulfur dioxide (SO2). Recent papers have argued that flaws in the design of the auctions that are part of this market have adversely affected its performance. These papers incorrectly assume that trade can only occur at auctions, however. Our empirical analysis of the SO2 emissions market shows that the auctions have become a small part of a relatively efficient market and that the auction design problems that have attracted the most attention have had no effect on actual market prices
Keywords: Sulfur Dioxide Emissions; Auction Design; Market Efficiency
JEL Codes: Q53; L51; H23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Auction design flaws (D44) | Actual market prices (D41) |
| Critics' focus on auction design (D44) | Overestimation of its impact on market efficiency (G14) |
| Auction design flaws (D44) | Market efficiency (G14) |
| Auction design flaws (D44) | Bilateral trading between utilities (L94) |
| Auction design (D44) | Market performance (G10) |