ACE: A Combinatorial Market Mechanism

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In 1990 the South Coast Air Quality Management District created a tradable emissions program to more eciently manage the extremely bad emissions in the Los Angeles basin. The program created 136 different assets that an environmental engineer could use to cover emissions in place of installing expensive abatement equipment. Standard markets could not deal with this complexity and little trading occurred. A new combinatorial market was created in response and operated successfully for many years. That market design, called ACE (approximate competitive equilibrium), is described in detail and its successful performance in practice is analyzed.

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