Not quite fun for most...

Escultor
Escultor Posts: 64
edited September 27 in Chit-Chat
I need a bit of help in the form of you reading over what I include below. My colleagues have not given me any feedback.

I'm going to ask your opinions on a quick, simple explanation of the All-in-Auction model for setting flexible, fair rates for water. It's a system developed in a recent paper by a professor in the Netherlands which addresses the participation effect and the endowment effect in reallocating water in times of shortage.

1. Everything put in the auction for allocation to member agencies in the greater water district. (A wholesale mechanism, not individuals.)
2. Establish historic water rights for units per member (participating agency).
3. Participants bid based on the number of units they are contributing to the total.
4. Order bids and bidders in descending order of sell price. Is it sell price or buy price?
5. Count down from the top bid the number equal to the number of units available for minimum bid price. Is this also the maximum rejected bid?
6. Every bidder above this price purchases a unit of water at the minimum bid price for each sufficient bid. The unit price is the same for all participants.
7. If all my bids are above the minimum, I sell all my water, but also buy the same number. This is called the indifferent seller. Is this an economic term or personal?
8. The participants who don't want to sell can bid high enough that they get their water out of the auction. There will still be net buyers and net sellers.

The questions are for the original author. Just tell me if you think you could explain it to another person in your own words. You would be allowed to refer to this, I just need to know if you feel like you understand. If I could get a half dozen responses by Thursday night I would be most appreciative. I submit this on Friday.

Cheers muchly!

Replies

  • mommared53
    mommared53 Posts: 9,543 Member
    Huh? :huh:
  • Escultor
    Escultor Posts: 64
    Really? Is it just not comprehensible at all or that a reflection of the subject in general? I needed to move on to other parts of the work but maybe I should go back to it.
  • sue26
    sue26 Posts: 412
    In short no I couldnt - sorry:sad:
  • Escultor
    Escultor Posts: 64
    Ok, so I"m going to go one number at a time.

    1. Every potential water unit is available and up for purchase at the auction to member agencies in the water district. (not individuals)

    Does that sound clear? Whether the water unit is gallons or acre feet doesn't really matter. In theory, it would be some vague amount like one person's water per year (roughly 65,700 gallons).

    Any questions on #1?
  • sue26
    sue26 Posts: 412
    okay with that one:smile:
  • Escultor
    Escultor Posts: 64
    Good. Thanks.

    2. Establish historic water rights for units per member (participating agency). Becomes something like this:

    2. Determine the allotment for each participating agency in the water auction based on historical rights and prior use patterns.

    In years of drought, this might be a percentage of the whole supply rather than the real numbers of the past.
  • sue26
    sue26 Posts: 412
    thats clearer :smile:
  • Escultor
    Escultor Posts: 64
    Good. Again, cheers.

    3. Participants bid based on the number of units they are contributing to the total.

    3. Participants place a number of bids equal to the number of allotted water units from 2 above defining acceptable sell prices. If I have 4 units allotted me, I place 4 bids. These may vary, be all extremely high, or be extremely low.

    I had hoped to avoid giving examples at each stage, but it may make things clearer as readers work through the model - especially if they're not otherwise trained in economics or hydrology.
  • sue26
    sue26 Posts: 412
    yep get that one too
  • sue26
    sue26 Posts: 412
    get #4 too:smile:
  • sue26
    sue26 Posts: 412
    first part of #5 is clear
  • Escultor
    Escultor Posts: 64
    OK, #5

    Count down from the top bid the number equal to the number of units available for minimum bid price.

    (When bids are submitted and arranged in descending prices per stage 4,)

    Identify the number of valid (highest) bids by selecting a group equal to the units of water available in the auction. These are all adequate to pass the minimum bid price. If there were 10 units of water, therefore 10 bids, the 11th bid from highest will be the minimum bid price and all participants will pay this price per unit for their water.
  • rundgrenfan
    rundgrenfan Posts: 211
    It makes sense. Your explanations are pretty clear. Always good to have examples in your hip pocket, too, just in case!
  • sue26
    sue26 Posts: 412
    :smile: it was the second part of #5 I wasnt sure about. #6 is clear too
  • significance
    significance Posts: 436 Member
    Esculator, let's see if I can understand.
    1. Work out how many units each participant has to begin with (based on historical allocations).
    2. Each participant sets a minimum sell price for each unit they have.
    3. They presumably then place buy bids for the number of units they want.
    4. As many units are allocated as have buyers at the minimum sell price. The per-unit price for all buyers is the same (for the whole auction, or for a block which fall below a certain minimum sell price?)
    ??
    5. Profit!

    I suspect I have it wrong. It seems you don't have separate buy and sell prices, but one bid which acts as both a buy and sell price somehow? I don't see how that works?
  • Escultor
    Escultor Posts: 64
    5 is actually the point at which we determine the minimum satisfactory price for selling. By asking participants to set sell prices in a range if desired, we get a threshhold which allows us to identify all bids which result in an actual exchange.

    The market element comes into play since there is presumably more demand than supply. If there are 10 units of water available but one agency hopes to increase its share by bidding more than its allotment, it increases the number of bids. The most common example is more often a conservation group seeking to keep water in the natural environment rather than scive it off for human consumption. So, 10 units available means there can only be 10 bids accepted of, say, 15. The lowest 5 bids for selprices will be rejected and the minimum price is that highest rejected bid. It's the way ebay works. You pay the last bid (n) +1.
  • sue26
    sue26 Posts: 412
    get it
  • sue26
    sue26 Posts: 412
    the rest is clear now too :smile: Hope it all goes well
  • significance
    significance Posts: 436 Member
    Esculator, that explanation makes sense. Did I get the rest right? I think the original set of steps is very unclear and needs to be re-written. (I'm a water scientist and really struggled to understand it).
  • Escultor
    Escultor Posts: 64
    Thanks, all.

    Significance, the thing I didn't make clear in this and had already identified was the multilateral (or simultaneous) action. The assumption is that since it's an all-in auction, there is no need to make buy bids when the participants have already declared acceptable prices. Of course, this only works with consensus that it is for greater public good and that we don't necessarily have all the individual freedoms we have when selling a car, for instance.

    This was my first attempt at simplifying a 34 page paper while also making it readable at an everyday level and comfortable for all stakeholders in the water district, not just academics or policy makers. I appreciate the help of everyone who weighed in on this.
  • significance
    significance Posts: 436 Member
    I understood that it was a simultaneous auction, but I still don't understand why there's no need for buy bids. If I am willing to sell my 3 units for $10K each, it doesn't follow that I'd be willing to buy another unit at the same price (much less another 10 units). Lets say I have a certain amount of land suitable to a high-value crop that requires my 3 units. I'd place a high value on the first 3 units of water I can hold on to. I may have a second water use open to me with a lower value. So if the price is $10K/unit, I'd want only 3 units, but if it's $7K per unit, I'd be glad to get 10 units. I might or might not have a third, still lower-value use option. So if the price drops to $2K/unit, I might still only want 10 units, or I might want 20.
  • Escultor
    Escultor Posts: 64
    ok, If your minimum bid is sufficient to qualify in the top range of the number of bids, not the value of bids, you may get that really low end unit. In effect, if you're willing to sell at $x price, the assumption is that you will buy at the same price. That's what eliminates the endowment effect where we feel we chould be able to sell at one price but we're not willing to buy at the same price. We want the price we pay to be lower or the price we earn to be higher. I'll send you a PM to the original paper and a peer discussion.
  • Escultor
    Escultor Posts: 64
    The author (DZ) wrote me with corrections. His explanation follows.

    E: Please tell me if I've got this right for the AiA.

    Everything put in the auction for allocation to member agencies in the greater water district. (A wholesale mechanism, not individuals.)
    Establish historic water rights for units per member (participating agency).
    Participants bid based on the number of units they are contributing to the total.


    (DZ)No, they bid based on # they want to BUY


    E: Order bids and bidders in descending order of sell price. Is it sell price or buy price?


    (DZ)of BID price. highest rejected bid is buy/sell price for all.


    E Count down from the top bid the number equal to the number of units available for minimum bid price. Is this also the maximum rejected bid?


    (DZ) 4 units means 5th highest bid (max rejected bid) sets price


    E Every bidder above this price purchases a unit of water at the minimum bid price for each sufficient bid. The unit price is the same for all participants.
    If all my bids are above the minimum, I sell all my water, but also buy the same number. This is called the indifferent seller. Is this an economic term or personal?


    (DZ) You BUY units for all bids that are accepted. You ALWAYS sell all your units. The net difference determines if you are net buyer, net sellers or indifferent seller (we're renaming this "neutral participant")


    E The participants who don't want to sell can bid high enough that they get their water out of the auction. There will still be net buyers and net sellers.


    (DZ) Yes
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