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| The focal point of this study is to develop a model of Carbon Permit Auction for Malaysia by adopting the Mechanism design approach in order to structure the model. An auction can be defined as one way of selling an object to potential users with individual private values. An auction is a superior method compares to grandfathering approach. This method can allocate the permit according to who values carbon permit the most. The Carbon Market, also known as Emission Trading, is an administrative approach used to control pollution. The market provides economic incentives for achieving reductions in the emissions of pollutants. These incentives are sometimes called “cap and trade” or “limit and trade.” Hence, it is vital to model the mechanism design of carbon permit auction due to its strong relation between carbon permit allocation and carbon pollution. A national model is referred to internal modelling for the country “i”, in this case is Malaysia. Therefore, in the mechanism design modelling stage, this paper seeks the best way for the government to encourage all firms in revealing their true type of carbon permit allowance. Point being, the success or failure of the mechanism crucially depends on firm’s revelations of carbon permit. The question on how to encourage each firm to reveal their actual valuation of carbon pollution is a crucial part. However, this paper finally achieved its objective in term of designing the mechanism for homogeneous carbon permit auction. |
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