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.

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.
• Team name: the first name and last initial of each of you. The same name in the same market is the same firm, so two teams must never type the same name. If your phone dies, rejoin with the same market and the same team name.

Your goal, and what doing nothing costs

Make your firm’s total cost as low as possible. You start with three permits. If you never trade, you emit three tonnes and abate the other three, paying the first three costs on your card. That is your do-nothing cost. A trade is worth making only if it leaves you below it. A price that seems fair can still lose you money.

Your two numbers, before the market opens

Turn your card into two prices and write them on your tracking sheet. An example, on an invented card that belongs to no firm in the game:

• Do-nothing cost: €3 + €6 + €11 = €20.
• Lowest price to sell one permit: €18. Selling a permit means abating one more tonne, the 4th, which costs €18. Never sell for less.
• Highest price to buy one permit: €11. Buying a permit lets you skip one tonne, the 3rd, which costs €11. Never pay more.
• For a second permit, move one row further out: sell at €27 or more, buy at €6 or less.

Check every trade against these numbers before you send it.

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. A buy order trades at once against any waiting sell order at the same price or lower, and a sell order against any waiting buy order at the same price or higher. The trade happens at the price of the waiting order. Otherwise your order waits in the book until it trades 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. Your page then shows your total cash out: abatement cost, plus what you paid for permits, minus what you received. Compare it with your do-nothing cost.
• Halfway through the round I freeze both markets and ask you to write down whether you would change your two 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. Your page shows your new card: work out your do-nothing cost and your two numbers again before you trade. The treated market runs the amendment, the control market runs the original rules.

Nothing about the outcome is graded.