MSING019: Pollution Permits in order to Pollute – Economics Assignment
- Suppose that firms must own pollution permits in order to pollute. Suppose that a single permit is being auctioned to two firms. Firm 1 values the permit at £200 and Firm 2 values it at £150. What do you expect the outcome of the auction to be in the case of:
(a) An English auction?
(b) A Dutch auction?
(c) A First-price sealed-bid auction?
(d) A Second-price sealed-bid auction?
Carefully explain your answers. - Suppose that there is an empty apartment in Bloomsbury which UCL owns and is thinking of renting out. There are two families interested in renting the apartment. Family A values the apartment at £1000 per month, while family B values it at £1500 a month. Your friend Bob
tells you that he thinks that family A should get the apartment because it is poorer than family B. Is this Pareto efficient? Can you think of a better outcome which does not upset family A? Carefully explain. - The Republic of Tazbekistan has found oil! The drilling rights are set to be auctioned using a second-price sealed bid auction. You work for a major oil company and are asked to visit the site and estimate the value of the oil. Your best estimate is $5billion. On returning to London
your boss insists that your firm should bid $5billion, he explains that ‘bidding your true value is a weakly dominant strategy’. Is he correct? Carefully explain.
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