COE AS AN IMPLEMENTATION MECHANISM

Abstract

The Singapore car quota system is first of its kind in the world. It is a complex system which imposes a quota limit on the number of new vehicles that can be added on the roads each year. The willingness to own a car is an individual's private information, so that information is decentralized. The social planner should design a mechanism that can allocate the cost efficiently and the mechanism is based on bids that are transmitted to him by the agents concerning their reservation values of owning cars. Given that each agent attempts to take advantage of the planner's ignorance of his own reservation value, incentive theory studies the feasible actions of the planner using mechanisms designed to overcome this informational gap at the lowest cost. Thus, the aim of this Honours Thesis is to determine whether the COE auction system serves as a mechanism for which the strategic equilibria lead to the efficient outcome of allocating the COE to those who need it most. We shall restrict ourselves to decisions mechanisms which are individually incentive compatible - that is, mechanisms with non­ cooperative concepts of equilibrium. We shall provide a discussion of when the efficient outcome of the allocation of COEs can be implemented by a auction mechanism with Nash equilibrium as the solution concept in the non-transferable uniform-pricing COE system. This analysis is also extended to other alternatives of the present auction system. This includes the transferable uniform-pricing model, nontransferable and transferable discriminative-pricing auction systems.