Browsing by Subject "auction"

Aquaculture is seen as an answer to the future’s projected demand increase of seafood. This offers possibilities for the Finnish society to benefit economically. Globally, environmental concerns are set to the pressure the future demand, since the sector’s production is jointly linked to creating negative outputs, nutrient emissions. These problems are especially present in Finland, which’s offshore aquaculture production occurs geographically in one of the world’s most eutrophicated seas, the Baltic Sea. Finnish aquaculture regulation is currently a type of “command and control”, which is seen as one of the main reasons why the domestic production has decreased drastically in 21st century. Continuing to utilize feed quotas may not sufficient and incentivizing for the producers which creates need to review other possible economic instruments. This research studies the possibility of utilizing auctioned emission permits. The work contributes to auction theory of incomplete information games while adding Baltic Sea elements such as abatement costs to our analyzed model. This thesis addresses three questions: How can the chosen auction models support sustainable growth of aquaculture in economically efficient way? What is the level of optimal price floor? Which auction form is expected to create highest revenue surplus for the society? The policy maker is interested in assessing which of the chosen auction models is best allocation tool under present asymmetrical information. To combat the missing information on production values per kilogram of nitrate, Monte Carlo-simulation is utilized to generate values for the bidding producers. The analysis creates premise of including price floor in the mechanism designs to guarantee sustainability. The price floor guarantees that the value of allocated permit will be at least the size of our adopted abatement costs, which originate from certain mussel cultivation farm located in Sankt Anna, Sweden. The effects of two potential price floors are analyzed. First, which secures sustainability and second, which maximizes expected revenue surplus. Our modelled results follow the findings of the theory. All chosen auction designs are expected to create similar results in allocating the emission permits. To secure that the allocated permits are sustainable, and that the allocation maximize society’s revenue surplus, the social planner should implement price floor which is strictly higher than his personal valuation of the permit. This removes the possibility of auction being ex-ante efficient. Even though in the chosen model setting the price floor’s level was not dependent on the level of buyers, the social planner should not ignore the aspect of competition. By designing a mechanism that enables easy entry for bidders to participate, the auctions are expected to attract higher levels of competition which can create results that are closer to competitive markets. This can decrease the role of price floor, which may ease mechanism designing. To get more accurate results in the Finnish scene, more detailed information on possible domestic aquaculture production values is needed