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Market Based Instruments –Workshop exercise feedback
StructureStuart Whitten
CSIRO Sustainable Ecosystems
Exercise feedback
• Basic first price, sealed bid auction (discriminatory bid auction).
• Uniform price auction
• What if we got the metric wrong?
• Efficiency comparison
Exercise feedback – Auction results
Discriminatory$60.00, 3502 Ml
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Exercise feedback – auction results
Discriminatory$60.00, 3502 MlUniform
$46.00, 2717 Ml
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Exercise feedback
• Last bid for first price auction sold at: $60/Ml
• We reduced recharge by 3502 Ml.
• Uniform price equivalent was: $46/Ml or 36%
• 43 bids were accepted as follows:
Exercise feedbackFarm No. Farm No. Farm No.
3 19 303 19 304 20 314 20 315 21 325 22 339 22 3310 23 3610 24 3811 25 3814 25 4115 26 4116 26 4216 27 44
27 44
Exercise feedback
Discriminatory$40.00, 5556
Uniform$30.00 4092
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Exercise feedback
• What if some of the farms are in fact twice as effective in reducing recharge as others?
• This changes our final bid price to: $40
• Uniform price equivalent was: $30
• We reduced recharge by 5556 and 4092 Ml respectively.
• It also changes who we pay with 8 and 29 now paid but several others now out.
Exercise feedback
Discriminatory$60.00, 3502 Ml
$49.083752 Ml
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Exercise feedback
• How does the actual offer curve compare to a zero margin, zero transaction cost curve?
– Curve compares well but we pay more and get less recharge. This is expected in the real world too due to transaction costs.
• Did we achieve our 61% target?
– We only achieved 36% reduction – government controlled the budget.