The effect of initial lease periods on price discovery in laboratory tradable fishing allowance markets
2006
Abstract Newly established tradable fishing allowance markets are often accompanied by a period of high price volatility. These fluctuations complicate capital investment decisions and play a significant role in determining outcomes for the traders involved. This paper reports an evaluation of two market design features that may reduce volatility during price discovery: a uniform price auction, in which all trades within a period take place at the same price, and an initial lease period, which prohibits permanent allowance transfers at the beginning of the program. We find that initial lease periods effectively reduce volatility once permanent trading is introduced.
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