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Which performs better under trader settings, double auction or uniform price auction?

Published online by Cambridge University Press:  14 March 2025

Koji Kotani Open the ORCID record for Koji Kotani [Opens in a new window] ,
Kenta Tanaka  and
Shunsuke Managi
Koji Kotani*
Affiliation:
Research Institute for Future Design, Kochi University of Technology, Kochi-shi, Japan School of Economics and Management, Kochi University of Technology, Kochi-shi, Japan Urban Institute, Kyusyu University, Fukuoka, Japan College of Business, Rikkyo University, Tokyo, Japan
Kenta Tanaka
Affiliation:
Faculty of Economics, Musashi University, Tokyo, Japan
Shunsuke Managi
Affiliation:
Departments of Urban and Environmental Engineering, School of Engineering, Kyushu University, Fukuoka, Japan
*
kojikotani757@gmail.com
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Abstract

A marketable permit system (MPS) has been suggested as a solution to environmental problems. Although the properties of MPSs under non-trader settings, in which each player is exclusively either a seller or a buyer, are well documented, little research has explored how MPSs perform under trader settings, in which each player can be both a seller and a buyer. We institute two auctions of trader settings in MPS experiments: a double auction (DA) and a uniform price auction (UPA). We then evaluate and compare their performances both with each other and with those under non-trader settings. The main results are as follows: DAs under trader settings perform much worse than do DAs under non-trader settings, whereas UPAs perform well, regardless of the trader and non-trader settings. UPAs are more efficient and generate more stable prices than do DAs under trader settings, and a considerable proportion of trades in DAs under trader settings consist of “flips” that could be considered speculation or errors. Thus, UPAs are likely to work better than DAs under trader settings.

Keywords

Marketable permitsEconomic experimentsDouble auctionUniform price auctionNon-trader settingsTrader settings

JEL classification

D44: Auctions C91: Laboratory, Individual Behavior Q50: General

Information

Type
Original Paper
Information
Experimental Economics , Volume 22 , Issue 1 , 15 March 2019 , pp. 247 - 267
Copyright
Copyright © 2018 Economic Science Association

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