Game 2: The permit market
The story
Your team runs a firm that emits six tonnes a year. The regulator has capped the market: every tonne needs a permit and there are fewer permits than tonnes. What you cannot cover with permits you abate, at a cost that rises with each tonne. Only your firm knows its costs. You trade permits with the other firms in your market.
The room is split into two markets, A and B, with the same rules and four firms each. After the first round the whole class becomes the regulator. You debate two amendments to the rules, vote one in, and a coin decides which market runs under it in the second round. The other market keeps the original rules. In Week 8 we treat this as an experiment and ask what the amendment did.
Join
- Firms: envecon-games.netlify.app/games/permit-online/student.html
- Pick your market (A or B) and join with your team’s name. One phone per firm; at the usual attendance two of you share a firm.
How we play
- When I start the game your firm is dealt at random: Alfa, Bravo, Charlie or Delta. Your page shows your cost card, the cost of abating each tonne from the first to the sixth. Keep the card to yourself.
- Every firm starts with three free permits. The market has twelve.
- Trading. Post a buy or a sell order at a price of your choice, in whole euros, for one to six permits. If it crosses an order on the other side of the book it trades at once, at the resting order’s price. Otherwise it stays in the book until someone crosses it or you cancel it. You can only sell permits you hold. There is no official price and I am not going to suggest one.
- Compliance. When the round closes you emit one tonne per permit you hold, up to six, and abate the rest at your card’s cost. Permits beyond six are wasted. The rule printed on every card: abate a tonne if its cost is at or below the permit price.
- The clock runs for about 25 minutes. Halfway through I freeze both markets for a minute and ask you to write down whether you would revise your numbers.
Round 1
Both markets trade under these rules. At the close we compare each market’s price, abatement, emissions and total abatement cost with what the same firms would have paid had each met the cap on its own.
The committee
You are no longer firms. Everyone gets a two-page dossier with both markets’ results, and the class debates two amendments to the rules. You see them in class. Blank ballot, simple majority, and I have the casting vote if it is a tie. Before I open the ballots, the committee writes and signs one sentence predicting what the winning amendment will do. Then the coin: heads, market A gets the amendment and market B stays as it is; tails, the other way round. I announce the mapping before the flip.
Round 2
Abatement is now more expensive for every firm in both markets, by the same amount. Open your card. The treated market runs the amendment, the control market runs the original rules. Trade again.
After class
The tape, every trade with its time, market, buyer, seller, price and quantity, goes on Blackboard within 24 hours, for both markets and both rounds. Week 8 starts from it: treatment and control, what the amendment changed, and what the comparison cannot tell us.
Tips
- Work out your reservation prices from your card before you trade: the most a permit is worth to you, and the least you should accept for one.
- Watch the book and the tape, not only your own orders.
- Nothing about the outcome is graded.