Peter Cramton | |
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Born | November 12, 1957 |
Nationality | American |
Spouse | Catherine Durnell Cramton |
Academic background | |
Education | Cornell University, B.Sc. (1980) Stanford University, Ph.D. (1984) |
Thesis | The Role of Time and Information in Bargaining (1984) |
Doctoral advisor | Robert Wilson |
Academic work | |
Discipline | Economist |
Sub-discipline | Auctions and Market Design |
Institutions | University of Maryland since 1993 University of Cologne since 2018 |
Peter Cramton is an American economist and academic. He is Professor of Economics at the University of Maryland,Emeritus since 2018,and holds the Market Design Chair in Economics at the University of Cologne. [1]
Cramton's research has focused on three related areas. The first is bargaining theory where he studies the role time and information play in determining bargaining outcomes. The second is auction theory and practice,where he examines the auctioning of interrelated items,such as radio spectrum,electricity,financial securities,rough diamonds,airport slots,and top-level domains. His work in bargaining and auctions is closely tied to his third theme:market design. His market design work concerns communications,energy,finance,transportation,and health industries. [2]
Cramton has written over one hundred articles. As of 2020,his work has been cited over 14,400 times according to Google Scholar. His best known publications are:"Bargaining with Incomplete Information:An Infinite-Horizon Model with Two-Sided Uncertainty","Dissolving a Partnership Efficiently,Strategic Delay in Bargaining with Two-Sided Uncertainty","Strikes and Holdouts in Wage Bargaining:Theory and Data,The FCC Spectrum Auctions:An Early Assessment","Demand Reduction and Inefficiency in Multi-Unit Auctions",and "The High-Frequency Trading Arms Race:Frequent Batch Auctions as a Market Design Response". [3]
Cramton received a Bachelor of Science from Cornell University in 1980. He then joined Stanford University,where he received his Doctor of Philosophy in 1984. [1] His dissertation was "The Role of Time and Information in Bargaining." [4]
Cramton joined Yale University in 1984 as an Assistant Professor,becoming Associate Professor in 1988. He worked at Stanford University as a National Fellow of the Hoover Institution in 1992–93. He then joined the University of Maryland in 1993 as an Associate Professor. He was promoted to Full Professor in 1996. [5]
Cramton spent 2015–17 abroad as professor at the European University Institute in Florence,Italy [6] and as a member of the International Faculty at the University of Cologne in Germany. [7] In 2017,he joined the Reinhard Selten Institute as a Research Affiliate. In 2018,he joined the University of Cologne as Professor of Economics and Chair of Market Design. [1]
In 2010,Cramton launched an effort to improve Medicare procurement. It gained some traction,and in 2012,he testified before the U.S. Congress on the matter. [8] The innovations to the market were finally implemented in 2019. Cramton has been an investigator on ten National Science Foundation grants. He has also received grants from the Federal Aviation Administration and the US Department of Agriculture. [5]
Cramton has been the Associate Editor of Management Science since 2018. [9]
He is also on the Board of Directors of the Electric Reliability Council of Texas (ERCOT). This attracted controversy when,during ERCOT’s imposition of power outages in February,2021,it was reported that several members of the ERCOT Board of Directors (including Cramton) did not live in Texas. Directly after the power outages,there were calls for him to resign. On February 23,2021,Cramton signed a letter of resignation along with three other directors of ERCOT,who also lived outside of Texas.
Cramton is a major advocate for the use of auctions,rather than the grandfathering,of emission permits. He has helped to design many electricity auctions that are conducted throughout the world. [10] [11] In the area of telecommunications,together with Larry Ausubel and Paul Milgrom,he invented the combinatorial clock auction. This combinatorial auction design has been used for more than ten major spectrum auctions in Europe,Canada and Australia. [12] [13]
In financial markets,together with Eric Budish and John Shim,he has been a critic of high-frequency trading. His book,Combinatorial Auctions,edited with Yoav Shoham and Richard Steinberg,has more than 1,300 citations. The book explains why and how to conduct auctions with package bidding. [14]
He has provided advice on electricity auctions and electricity market restructuring in New England,Alberta,Colombia,the UK,France and New Zealand. He serves on the Board of Directors of the Electric Reliability Council of Texas (ERCOT),the electricity grid operator in Texas. [15] He has helped to guide spectrum regulators in the US,Canada,the UK and Australia,and he has advised bidders in many countries and industries. He has helped to change the common sales practice for rough diamonds from opaque cartel pricing to transparent auctions. [16]
One of Cramton's latest projects is to reduce traffic congestion and pollution emissions through use of scheduling,routing and real-time pricing. [17]
Along with his academic work,Cramton has been involved in entrepreneurial and board activities with many organizations. In 1993,he founded Cramton Associates,which provides consultancy on auctions and market design to governments and organizations. Through Cramton Associates,Cramton has advised many governments in the design of complex auction markets. [18]
Cramton serves as the Chief Economist of Innovative Auctions,which provides web-based auction systems to governments and industry. He is also the Chief Economist of Tremor,a company that uses smart markets to improve reinsurance markets. Cramton is a member of the Academic Advisory Group for CartaX,a company that provides a platform to trade private equity. [19]
In 1995,Cramton joined Market Design Inc. as a principal together with Paul Milgrom,Robert Wilson,Preston McAfee and John McMillan. Market Design Inc. (MDI) was founded to bring innovative auction ideas to practice. MDI's main application was spectrum auctions,although between 1995 and 2016 MDI did projects in many industries and countries. In 1999,Cramton became president of MDI and in 2003 he became chairman of the board,a post he held until MDI closed in 2016. [7]
In 1999,together with Larry Ausubel and Paul Milgrom,Cramton led an effort to organize the exchange of TV broadcast spectrum for mobile communications use—an effort called Spectrum Exchange. Cramton and his partners worked from 1999 to 2001 to organize a spectrum exchange between TV broadcasters and mobile carriers. The effort ultimately failed,because the mobile carriers had enough spectrum from early spectrum auctions and TV broadcasters had unrealistic views about what they should be paid given the extremely high spectrum auction prices observed during the dotcom and telecom bubble of 2000. Moreover,Spectrum Exchange did not have a good solution to the holdout problem:the problem of an essential TV station holding out to capture the windfall gains. That solution had to come from the Federal Communications Commission (FCC) and required enabling legislation. Ultimately,the need for more spectrum led Congress to pass enabling legislation for a broadcast incentive auction. The FCC held the auction from March 2016 to March 2017. The auction made available 70 MHz of contiguous spectrum in the TV band for mobile communications. This enabled the smaller network operators,such as T-Mobile,to gain essential low-band spectrum to compete effectively with the larger incumbents,AT&T and Verizon. [20] [21]
Cramton's research has followed three related themes:bargaining,auctions and market design. Climate policy is one important application of market design.
In the beginning of his career,Cramton's research was focused on bargaining. His first published article,which appeared in the Review of Economic Studies,analyzed a dynamic bargaining model where the seller makes repeated offers to a buyer. The paper shows how timing and information affect the rational behavior of agents when commitment is not possible. Since the bargainers are uncertain about whether trade is desirable,they must communicate some of their private information before an agreement can be reached. This need for learning,due to incomplete information about preferences,results in bargaining inefficiencies:trade often occurs after costly delay. Thus,the model provided an explanation for the inefficient bargaining behavior that often occurs in practice. [4]
Cramton continued to develop the same theme in his 1992 Review of Economic Studies article. The role of strategic delay is analyzed in an infinite-horizon alternating-offer model of bargaining. Again,the two players each possess private information and they are impatient in that delaying agreement is costly. An equilibrium is constructed in which the bargainers signal the strength of their bargaining positions by delaying prior to making an offer. A bargainer expecting large gains from trade is more impatient than one expecting small gains,and hence makes concessions earlier on. Trade eventually occurs whenever gains from trade exist,but due to the private information,only after costly delay. [22]
His 1992 American Economic Review article with Joe Tracy is the best known of several of his papers that crossed over between bargaining and labor economics. They augment the standard bargaining model with additional moves—strikes and holdouts. They develop a private-information model of contract negotiations between the union and management,in which the form of dispute can signal the player's value. [23]
Cramton has also written many well-cited articles assessing spectrum auctions. The best known of these was published in the 1997 Journal of Economics &Management Strategy. It assessed the first several FCC broadband auctions. [24] His 1995 article,"Money Out of Thin Air:The Nationwide Narrowband PCS Auction",also in the Journal of Economics &Management Strategy,provides extensive analysis of the first FCC spectrum auction (Auction #1). The paper identifies key elements of bidding strategy,such as demand reduction,and identifies design flaws that the FCC ultimately corrected,such as bid signaling with the trailing digits of bids. [25]
Cramton's first foray in the area of market design was when,with two graduate school friends,he wrote his 1985 Econometrica paper on dissolving a partnership efficiently. Roger Myerson and Mark Satterthwaite had recently written their classic paper proving that,with two-sided incomplete information,independent private values and overlapping supports,any budget-balanced mechanism for selling a good is necessarily inefficient. Cramton and his co-authors considered the scenario where two or more partners jointly own an asset. Each partner has a valuation for the asset. As in the bargaining model,the valuations are known privately and drawn independently from a common probability distribution. They characterize the set of all incentive compatible and interim-individually-rational trading mechanisms and give a simple necessary and sufficient condition for such mechanisms to dissolve the partnership efficiently. A bidding game is constructed that achieves such dissolution whenever it is possible. In contrast to Myerson and Satterthwaite's result,a partnership can be dissolved efficiently provided no single partner owns too large a share. The paper highlights that Myerson and Satterthwaite's inefficiency results depends both on uncertainty about the existence of gains from trade and the extreme asymmetry in ownership of buyer-seller bargaining. When the ownership asymmetry is reduced,efficient trade becomes possible. [26]
Cramton's most-cited market design paper is his 2014 Review of Economic Studies article on demand reduction. Together with co-authors Larry Ausubel,Marek Pycia,Marzena Rostek and Marek Weretka,he considers auctions involving the sale of many related goods,such as Treasury auctions,spectrum auctions and electricity auctions. In multi-unit auctions,a bid for one unit may affect payments for other units won,giving rise to an incentive to shade bids differently across units. They establish that such differential bid shading results generically in ex post inefficient allocations in the uniform-price and pay-as-bid auctions. They also show that,in general,the efficiency and revenue rankings for the two formats are ambiguous. However,in settings with symmetric bidders,the pay-as-bid auction often outperforms. With diminishing marginal utility,symmetric information and linearity,pay-as-bid yields greater expected revenues. They explain the rankings through multi-unit effects,which have no counterparts in auctions with unit demands. They attribute the new incentives separately to multi-unit but constant marginal utility and diminishing marginal utility. [27]
In the 2015 Quarterly Journal of Economics piece,Cramton and co-authors Eric Budish and John Shim argued that the high-frequency trading arms race is a symptom of flawed market design. Their key insight is that obvious mechanical arbitrage opportunities,like those observed in the data,are built into the current market design,which uses a continuous limit order book. The resulting arbitrage rents harm liquidity provision and induce a never-ending socially wasteful arms race for speed. Instead of the current market design,they argue that financial exchanges should use frequent batch auctions:uniform price double auctions conducted,e.g.,every tenth of a second. That is,time should be treated as discrete instead of continuous,and orders should be processed in a batch auction instead of serially. Discrete time reduces the value of tiny speed advantages,and the auction transforms competition on speed into competition on price. Consequently,frequent batch auctions eliminate the arbitrage rents,enhance liquidity for investors,and put an end to the high-frequency trading arms race. As chair of the market design area at the University of Cologne. His academic duties focus on theoretical,empirical,and experimental research in market design. Practical work includes advising governments and companies on the design and implementation of specific markets. [28]
In 1999,Cramton co-authored a book chapter with Suzi Kerr entitled "The Distributional Effects of Carbon Regulation",published in The Market and the Environment. They proposed that an auction of carbon permits,as opposed to grand fathering,is more desirable,because it avoids windfall gains to polluters. The idea was developed further in a paper in Energy Policy. Early adopters of emission trading schemes,such as the European Union,initially grand fathered allowances in proportion to emissions. However,consistent with the Cramton-Kerr analysis,large windfall profits to these polluters ultimately drove the EU to auction allowances. [29]
In a 2015 article in Nature,and in the book,Global Carbon Pricing,Cramton and his co-authors explain that reciprocity is an essential missing ingredient in promoting cooperation in climate negotiations among countries. [30] [31]
![]() | This section of a biography of a living person needs additional citations for verification .(November 2020) |
An auction is usually a process of buying and selling goods or services by offering them up for bids, taking bids, and then selling the item to the highest bidder or buying the item from the lowest bidder. Some exceptions to this definition exist and are described in the section about different types. The branch of economic theory dealing with auction types and participants' behavior in auctions is called auction theory.
In a broad sense, an electricity market is a system that facilitates the exchange of electricity-related goods and services.
Paul Robert Milgrom is an American economist. He is the Shirley and Leonard Ely Professor of Humanities and Sciences at the Stanford University School of Humanities and Sciences, a position he has held since 1987. He is a professor in the Stanford School of Engineering as well and a Senior Fellow at the Stanford Institute for Economic Research. Milgrom is an expert in game theory, specifically auction theory and pricing strategies. He is the winner of the 2020 Nobel Memorial Prize in Economic Sciences, together with Robert B. Wilson, "for improvements to auction theory and inventions of new auction formats".
A spectrum auction is a process whereby a government uses an auction system to sell the rights to transmit signals over specific bands of the electromagnetic spectrum and to assign scarce spectrum resources. Depending on the specific auction format used, a spectrum auction can last from a single day to several months from the opening bid to the final winning bid. With a well-designed auction, resources are allocated efficiently to the parties that value them the most, the government securing revenue in the process. Spectrum auctions are a step toward market-based spectrum management and privatization of public airwaves, and are a way for governments to allocate scarce resources.
Auction theory is an applied branch of economics which deals with how bidders act in auction markets and researches how the features of auction markets incentivise predictable outcomes. Auction theory is a tool used to inform the design of real-world auctions. Sellers use auction theory to raise higher revenues while allowing buyers to procure at a lower cost. The conference of the price between the buyer and seller is an economic equilibrium. Auction theorists design rules for auctions to address issues which can lead to market failure. The design of these rulesets encourages optimal bidding strategies among a variety of informational settings. The 2020 Nobel Prize for Economics was awarded to Paul R. Milgrom and Robert B. Wilson “for improvements to auction theory and inventions of new auction formats.”
A multiunit auction is an auction in which several homogeneous items are sold. The units can be sold each at the same price or at different prices.
Market microstructure is a branch of finance concerned with the details of how exchange occurs in markets. While the theory of market microstructure applies to the exchange of real or financial assets, more evidence is available on the microstructure of financial markets due to the availability of transactions data from them. The major thrust of market microstructure research examines the ways in which the working processes of a market affect determinants of transaction costs, prices, quotes, volume, and trading behavior. In the twenty-first century, innovations have allowed an expansion into the study of the impact of market microstructure on the incidence of market abuse, such as insider trading, market manipulation and broker-client conflict.
Tacit collusion is a collusion between competitors who do not explicitly exchange information but achieve an agreement about coordination of conduct. There are two types of tacit collusion: concerted action and conscious parallelism. In a concerted action also known as concerted activity, competitors exchange some information without reaching any explicit agreement, while conscious parallelism implies no communication. In both types of tacit collusion, competitors agree to play a certain strategy without explicitly saying so. It is also referred to as oligopolistic price coordination or tacit parallelism.
A combinatorial auction is a type of smart market in which participants can place bids on combinations of discrete heterogeneous items, or “packages”, rather than individual items or continuous quantities. These packages can be also called lots and the whole auction a multi-lot auction. Combinatorial auctions are applicable when bidders have non-additive valuations on bundles of items, that is, they value combinations of items more or less than the sum of the valuations of individual elements of the combination.
The United States 700 MHz FCC wireless spectrum auction, officially known as Auction 73, was started by the Federal Communications Commission (FCC) on January 24, 2008 for the rights to operate the 700 MHz radio frequency band in the United States. The details of process were the subject of debate among several telecommunications companies, including Verizon Wireless, AT&T Mobility, as well as the Internet company Google. Much of the debate swirled around the open access requirements set down by the Second Report and Order released by the FCC determining the process and rules for the auction. All bidding was required by law to commence by January 28.
Robert Butler "Bob" Wilson, Jr. is an American economist and the Adams Distinguished Professor of Management, Emeritus at Stanford University. He was jointly awarded the 2020 Nobel Memorial Prize in Economic Sciences, together with his Stanford colleague and former student Paul R. Milgrom, "for improvements to auction theory and inventions of new auction formats". Two more of his students, Alvin E. Roth and Bengt Holmström, are also Nobel Laureates in their own right.
Paul David Klemperer FBA is an economist and the Edgeworth Professor of Economics at the Department of Economics, Oxford University. He is a member of the Klemperer family. He works on industrial economics, competition policy, auction theory, and climate change economics and policy.
Alvin Eliot Roth is an American academic. He is the Craig and Susan McCaw professor of economics at Stanford University and the Gund professor of economics and business administration emeritus at Harvard University. He was President of the American Economic Association in 2017.
A smart market is a periodic auction which is cleared by the operations research technique of mathematical optimization, such as linear programming. The smart market is operated by a market manager. Trades are not bilateral, between pairs of people, but rather to or from a pool. A smart market can assist market operation when trades would otherwise have significant transaction costs or externalities.
Market design is a practical methodology for creation of markets of certain properties, which is partially based on mechanism design. In some markets, prices may be used to induce the desired outcomes — these markets are the study of auction theory. In other markets, prices may not be used — these markets are the study of matching theory.
The Price of Anarchy (PoA) is a concept in game theory and mechanism design that measures how the social welfare of a system degrades due to selfish behavior of its agents. It has been studied extensively in various contexts, particularly in auctions.
Estelle Cantillon is a Belgian economist. She is currently FNRS Research Director at the Université Libre de Bruxelles, a position she has held since 2016. Cantillon is also an associated researcher at the Toulouse School of Economics. Cantillon currently serves as the Joint Managing Editor at the Economic Journal and is an associate editor at the RAND Journal of Economics. She also holds appointments as a member of WZB Berlin's Advisory Board, research fellow at the Centre for Economic Policy Research, and committee member of Rethinking Belgium, “Matching in Practice” research network, and the European Economic Association. She has previously taught at Harvard Business School, Harvard Kennedy School, and Yale University. Cantillon's professional interests are microeconomics, market design, industrial organization and environmental economics. Her research typically combines theory and data. Currently, her research focuses on carbon emissions markets, the design of electricity wholesale markets, and climate transition policies. She is fluent in French and English and has passive knowledge of Dutch, German, and Spanish.
A multi-attribute auction is a type of auction in which the bids have multiple parts. Multi-attribute auctions allow agents to sell and purchase goods and services, taking into account more attributes than just price.
Course allocation is the problem of allocating seats in university courses among students. Many universities impose an upper bound on the number of students allowed to register to each course, in order to ensure that the teachers can give sufficient attention to each individual student. Since the demand for some courses is higher than the upper bound, a natural question is which students should be allowed to register to each course.
A load pocket is an area of electric grid that has limited ability to import electricity due to either very high concentration of demand or insufficient transmission capabilities and therefore cannot be entirely provided with power without participation of local electricity generation providers. A typical load pocket includes a major city. Load pocket's existence usually indicates difficulties with building of either new generation or new transmission, or both due to the area constraints or political pressure and despite the pocket being an attractive place for investment. The load pockets represent a problem for the deregulated electricity markets, as in the absence of regulation the captive customers are forced to accept the prices set by the local providers.