The annual adverse effects of pollution are on the order of 10% of world GDP. Many approaches are used or have been proposed to control the growing pollution problem, but none of them allows for efficient pollution control in settings in which the marginal cost of pollution is increasing and polluters are better informed than regulators about the costs of abatement. In particular, taxes, quantity restrictions, uniform-price auctions, and the usual implementations of discriminatory auctions (e.g., by the U.S. Environmental Protection Agency) in general lead to inefficient allocations. We propose a simple primary market mechanism, True-Cost Pay as Bid (TCPAB), that implements efficient pollution control and does not depend on how much information regulators have about firms' abatement costs. When polluters have symmetric information and the marginal cost of pollution is known, TCPAB implements an efficient primary market allocation. When the marginal cost of pollution is uncertain, TCPAB implements the most efficient allocation possible without further information on the true marginal cost. When polluters have asymmetric information about their opponents' costs of abatement, the inefficiency of TCPAB is small provided the informational asymmetry is not too large. TCPAB's favorable properties extend to dynamic environments provided limits are placed on the trading of permits across time. We also discuss how an adoption of TCPAB may facilitate international bargaining over emissions abatement.

Transaction costs are omnipresent in markets but are often omitted in economic models. We show that the presence of transaction costs can fundamentally alter incentive and welfare properties of Double Auctions, a canonical market organization. We further show that transaction costs can be categorized into two types. Double Auctions with homogeneous transaction costs---a category that includes fixed fees and price based fees---preserve the key advantages of Double Auctions without transaction costs: markets with homogeneous transaction costs are asymptotically strategyproof, and there is no efficiency-loss due to strategic behavior. In contrast, double auctions with heterogeneous transaction costs---such as spread fees---lead to complex strategic behavior (price guessing) and may result in severe market failures. Allowing for aggregate uncertainty, we extend these insights to market organizations other than Double Auctions.

We study the assignment of objects without transfers allowing for single-unit and general multi-unit demands, and any linear constraints, thus covering a wide range of applied environments, from school choice to course allocation. We establish the Second Welfare Theorem for these environments despite them failing the local non-satiation condition that previous studies of the Second Welfare Theorem relied on. We also prove a strong version of the First Welfare Theorem. We thus show that the link between efficiency and decentralization through prices is valid in environments without transfers, and hence provide a foundation for pseudomarket-based market design by showing that the restriction to such mechanisms is without loss of generality.

The pay-as-bid auction is a prominent format for selling homogenous goods such as treasury securities and commodities. We analyze the optimal design of pay-as-bid auctions allowing for asymmetric information. We show that supply transparency and full disclosure are optimal in pay-as-bid, though not necessarily in uniform-price (the main alternative auction format). Pay-as-bid is revenue dominant and might be welfare dominant. Under assumptions commonly imposed in empirical work, the two formats are revenue and welfare equivalent.

Pay-as-bid auctions are frequently implemented when a single seller allocates multiple units of a homogeneous good, and are commonly used to sell treasury securities, allocate electricity generation, and distribute emissions credits. In this auction format, bidders submit demand curves to a seller who uses these stated demands to compute market-clearing quantities, then allocates each bidder her associated quantity while charging the entire area under her stated demand curve. Except in parameterized settings, little has been known about equilibrium strategies in pay-as-bid auctions.