Copyright (c) 2010 All rights reserved. http://works.bepress.com/cramton Recent documents in Peter Cramton en-us Fri, 05 Feb 2010 12:58:41 PST 3600 http://works.bepress.com/cramton/163 http://works.bepress.com/cramton/163 Fri, 05 Feb 2010 12:54:15 PST At the international level, a global carbon price is a better form of commitment to reduce carbon emissions than a system of national caps. Peter Cramton and Steven Stoft outline a price-based approach that is simple, effective, and remarkably affordable. Peter Cramton Environmental Markets Q54 http://works.bepress.com/cramton/162 http://works.bepress.com/cramton/162 Tue, 24 Nov 2009 11:54:29 PST Forecasting electricity demand for future years is an essential step in resource planning. A common approach is for the system operator to predict future demand from the estimates of individual distribution companies. However, the predictions thus obtained may be of poor quality, since the reporting incentives are unclear. We propose a prediction market as a form of forecasting future demand for electricity. We describe how to implement a simple prediction market for continuous variables, using only contracts based on binary variables. We also discuss specific issues concerning the implementation of such a market. Peter Cramton Market Design Electricity and Gas http://works.bepress.com/cramton/161 http://works.bepress.com/cramton/161 Tue, 24 Nov 2009 11:50:09 PST We analyze the implications of different pricing rules in discrete clock auctions. The two most common pricing rules are highest-rejected bid (HRB) and lowest-accepted bid (LAB). Under HRB, the winners pay the lowest price that clears the market; under LAB, the winners pay the highest price that clears the market. This pricing difference creates stronger incentives for bid shading under LAB. When bidders seek to maximize profits, the HRB auction maximizes revenues and is fully efficient. The bid shading under LAB means that a bidder may regret losing. Bidders that anticipate this regret may limit bid shading, causing the LAB auction to achieve higher revenues than the HRB auction. Our experiments confirm that this is the case. The LAB auction achieves higher revenues. This also is the case in a version of the clock auction with provisional winners that is commonly used in spectrum auctions. This revenue result may explain the frequent use of LAB pricing despite the efficiency and simplicity advantages of HRB pricing. Peter Cramton Auctions Telecommunications Market Design Experimental Economics http://works.bepress.com/cramton/160 http://works.bepress.com/cramton/160 Tue, 24 Nov 2009 11:39:57 PST Since their advent in 2001, virtual power plant (VPP) auctions have been widely implemented. In this paper, we describe the various design choices that virtually all VPP auctions have had in common and also discuss a few aspects of the auction design that have varied significantly among the VPP auctions to date. We then consider whether VPP auctions have been an effective tool for promoting the objectives of regulators. We find that VPP auctions are effective devices for facilitating new entry into electricity markets and for developing wholesale markets, while they are not particularly well suited to making large reductions in market power in the spot market. Peter Cramton Auctions Market Design Electricity and Gas http://works.bepress.com/cramton/159 http://works.bepress.com/cramton/159 Tue, 24 Nov 2009 11:37:19 PST Forward markets, both medium term and long term, complement the spot market for wholesale electricity. The forward markets reduce risk, mitigate market power, and coordinate new investment. In the medium term, a forward energy market lets suppliers and demanders lock in energy prices and quantities for one to three years. In the long term, a forward reliability market assures adequate resources are available when they are needed most. The forward markets reduce risk for both sides of the market, since they reduce the quantity of energy that trades at the more volatile spot price. Spot market power is mitigated by putting suppliers and demanders in a more balanced position at the time of the spot market. The markets also reduce transaction costs and improve liquidity and transparency. Recent innovations to the Colombia market illustrate the basic elements of the forward markets and their beneficial role. Peter Cramton Auctions Collusion Market Design Electricity and Gas http://works.bepress.com/cramton/158 http://works.bepress.com/cramton/158 Tue, 24 Nov 2009 11:30:50 PST The failure of the international emission-capping agenda need not and should not block the path to Kyoto's goal of global carbon pricing. Unpriced emissions will remain the root cause of the climate change problem until carbon is priced. This paper follows the suggestions of Joseph Stiglitz, William Nordhaus and James Hansen for a global carbon tax, while expanding the flexibility of the system to allow cap-and-trade to be fully integrated. A global carbon price of $30 per ton together with a Green Fund for equity with developing countries is remarkably inexpensive. The cost per person per day in the United States would be just 23 cents. For a country, like China, with average per-person emissions the cost is 4 cents; for India the cost would be negative--the Green Fund would doubly cover India's abatement costs. The strength and distributional effects of the entire policy are controlled by just two values, the target carbon price and the Clean Development Incentive rate. These replace all national caps and all individual Green-Fund obligations and entitlements. Such a policy would reduce the world oil price and effectively transfer revenue from oil exporters to oil importers. For China and the United States, this savings would likely cover the full cost of the proposed initial climate agreement. Peter Cramton Auctions Market Design Environmental Markets http://works.bepress.com/cramton/157 http://works.bepress.com/cramton/157 Sun, 26 Apr 2009 03:31:29 PDT Argues that consumers and suppliers are better off with the clearing-price auction in electricity markets. Peter Cramton Auctions Market Design Electricity and Gas http://works.bepress.com/cramton/156 http://works.bepress.com/cramton/156 Sun, 26 Apr 2009 02:58:24 PDT On Monday, 23 March 2009, Treasury Secretary Geithner presented the Public-Private Investment Program as a key instrument to resolve the financial crisis (www.financialstability.gov). The Treasury's description still leaves many issues unanswered. We flesh out the auction design for legacy loans. A two-sided auction is required. Both banks and private investors must compete in a transparent and competitive process. Peter Cramton Finance Auctions Market Design http://works.bepress.com/cramton/155 http://works.bepress.com/cramton/155 Sun, 26 Apr 2009 02:55:48 PDT I study the design of auctions of natural resources, such as oil or mineral rights. A good auction design promotes both an efficient assignment of rights and competitive revenues for the seller. The structure of bidder preferences and the degree of competition are key factors in determining the best design. With weak competition and additive values, a simultaneous first-price sealed-bid auction may suffice. With more complex value structures, a dynamic auction with package bids, such as the clock-proxy auction, likely is needed to promote the efficiency and revenue objectives. Bidding on production shares, rather than bonuses, typically increases government take by reducing oil company risk. Peter Cramton Auctions Market Design Natural Resources http://works.bepress.com/cramton/154 http://works.bepress.com/cramton/154 Sun, 26 Apr 2009 02:50:32 PDT We analyze a discrete clock auction with lowest-accepted bid (LAB) pricing and provisional winners, as adopted by India for its 3G spectrum auction. In a perfect Bayesian equilibrium, the provisional winner shades her bid while provisional losers do not. Such differential shading leads to inefficiency. The size of the inefficiency declines with smaller bid increments. An auction with highest-rejected bid (HRB) pricing and exit bids is strategically simple, has no bid shading, and is fully efficient. In addition, it has higher revenues than the LAB auction, assuming profit maximizing bidders. The bid shading in the LAB auction exposes bidders to the possibility of losing the auction at a price below the bidder's value. Thus, fear of losing may cause bidders in the LAB auction to bid more aggressively than predicted assuming profit-maximizing bidders. We extend the model by adding an anticipated loser's regret to the payoff function. Revenue from the LAB auction yields higher expected revenue than the HRB auction when bidders' fear of losing at profitable prices is sufficiently strong. This would provide one explanation why India, with an expressed objective of revenue maximization, adopted the LAB auction for its upcoming 3G spectrum auction, rather than the seemingly superior HRB auction. Peter Cramton Auctions Telecommunications Market Design http://works.bepress.com/cramton/153 http://works.bepress.com/cramton/153 Sun, 26 Apr 2009 02:46:21 PDT I begin by describing some of the problems of the simultaneous ascending auction. Then I present the package clock auction, which retains the benefits, while addressing the weaknesses, of the simultaneous ascending auction. I emphasize two essential elements of the package clock auction: the pricing rule and the activity rule. Along the way, I summarize both experimental and field results with the package clock auction. Peter Cramton Auctions Telecommunications Market Design http://works.bepress.com/cramton/152 http://works.bepress.com/cramton/152 Thu, 05 Mar 2009 19:08:04 PST For Antigone and Devco. Peter Cramton Auctions Telecommunications Market Design http://works.bepress.com/cramton/151 http://works.bepress.com/cramton/151 Thu, 05 Mar 2009 19:07:11 PST For Antigone and Devco. Peter Cramton Auctions Telecommunications Market Design http://works.bepress.com/cramton/150 http://works.bepress.com/cramton/150 Thu, 05 Mar 2009 19:05:59 PST Determine the value of spectrum licenses won by Best Digital in the C-block Broadband PCS auction. For Best Digital. Peter Cramton Auctions Telecommunications Market Design http://works.bepress.com/cramton/149 http://works.bepress.com/cramton/149 Thu, 05 Mar 2009 19:05:19 PST For ISO New England. Peter Cramton Electricity and Gas Market Design http://works.bepress.com/cramton/148 http://works.bepress.com/cramton/148 Thu, 05 Mar 2009 19:04:01 PST Reply to comments on review of rules. For ISO New England. Peter Cramton Electricity and Gas Market Design http://works.bepress.com/cramton/147 http://works.bepress.com/cramton/147 Thu, 05 Mar 2009 19:03:00 PST Summary of review of reserves and operable capability markets. For ISO New England. Peter Cramton Electricity and Gas Market Design http://works.bepress.com/cramton/146 http://works.bepress.com/cramton/146 Thu, 05 Mar 2009 19:02:19 PST Comments on one-part vs. three-part bidding in energy market. For ISO New England. Peter Cramton Electricity and Gas Market Design http://works.bepress.com/cramton/145 http://works.bepress.com/cramton/145 Thu, 05 Mar 2009 19:01:36 PST Comments on installed capability market. For ISO New England. Peter Cramton Electricity and Gas Market Design http://works.bepress.com/cramton/144 http://works.bepress.com/cramton/144 Thu, 05 Mar 2009 19:00:53 PST Comments on energy price cap as a response to design flaws. For ISO New England. Peter Cramton Electricity and Gas Market Design