Structuring Auction Process

Law and economics has developed a rich literature regarding the allocation of property rights in the form of permits. This understanding is the foundation of the much discussed cap and trade approach to regulating GHG. However, the expanded use of permits has produced a new round of literature that examines the "lessons learned" from experiments with permit systems in environmental regulation. For example, much attention has been placed on the experience and subsequent reform of the EU's Emission Trading Program. In that permits, auctions, trading systems, price floors/caps, initial allocation concerns of equity and efficiency, etc. are all somewhat foreign and sterile to most college students, this assignment hopes to introduce these issues in a more familiar and less complicated application before looking at the more burdensome and challenging policy applications.

Students are first asked to consider an allocation problem with which a college student is expected to have some familiarity. Examples might include dorm room allocations, student parking permits, open gym hours, computer lab space, etc. The selection of the intro piece will likely depend on current concerns specific to an individual campus.

Students will be asked to construct a system that meets the institutional needs/policy goals that is satisfactory to the students being regulated. Participants will be given some guidance as to available options (first come first served, lottery draw, auctioning, systems of merit ranking, GPA, etc.) and have a chance to explore both efficiency and equity concerns for each type of approach. Discussion of the different approaches might be facilitating an understanding of tradeoffs, incentives, policy goals, etc.

This common experience will then serve as the foundation to look at a much more complicated real world application. My current thought is to have students examine selected pieces of the economics literature surrounding climate change policy (works by Nordhaus, Stavins, Romm all come to mind) and then compare the economic understanding of the issue to current legislation (at this time, Kerry-Warner would be the appropriate selection.)