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An assessment of four popular auction mechanisms in the siting of NIMBY facilities: some experimental evidence

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  • Euston Quah
  • Jongsay Yong

Abstract

The issue of locating locally unfriendly but socially beneficial facilities such as landfills and power stations is an important public policy concern in many countries. Local residents in the area where such facilities are to be located tend to exhibit strong opposition, no doubt due to the asymmetric distribution of the costs and benefits of such not-in-my-backyard (NIMBY) facilities. A potentially useful mechanism for the siting of such facilities is by compensation auctions, which attempt to incorporate the market mechanism into the decision making process. In such auctions, communities name the compensation they require to host such facilities, and the community demanding the least amount of compensation gets to host the facility. This research attempts to evaluate the performance of such compensation auctions using laboratory exepriments. Four popular auction formats are evaluated: first- and second-price and all-pay first-and second-price sealed-bid auctions. The latter two formats correspond to the compensation auctions with penalty payments proposed by Kunreuther and Kleindorfer (1986) and Quah and Tan (1998), who claim that these auctions are more efficient as they restrains strategic (or over) bidding. Our results, however, contradict this claim. We show that the first-and second-price auctions without penalty payments are in fact more efficient, in that they tend to minimize social costs, and truthful bidding is more likely.

Suggested Citation

  • Euston Quah & Jongsay Yong, 2008. "An assessment of four popular auction mechanisms in the siting of NIMBY facilities: some experimental evidence," Applied Economics, Taylor & Francis Journals, vol. 40(7), pages 841-852.
  • Handle: RePEc:taf:applec:v:40:y:2008:i:7:p:841-852
    DOI: 10.1080/00036840600758509
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    References listed on IDEAS

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    1. Kleindorfer Paul R. & Sertel Murat R., 1994. "Auctioning the Provision of an Indivisible Public Good," Journal of Economic Theory, Elsevier, vol. 64(1), pages 20-34, October.
    2. Euston Quah & K.C. Tan, 2002. "Siting Environmentally Unwanted Facilities," Books, Edward Elgar Publishing, number 1389.
    3. Kunreuther, Howard & Kleindorfer, Paul & Knez, Peter J. & Yaksick, Rudy, 1987. "A compensation mechanism for siting noxious facilities: Theory and experimental design," Journal of Environmental Economics and Management, Elsevier, vol. 14(4), pages 371-383, December.
    4. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-838, May.
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    6. E Quah & K C Tan, 1998. "The Siting Problem of Nimby Facilities: Cost – Benefit Analysis and Auction Mechanisms," Environment and Planning C, , vol. 16(3), pages 255-264, June.
    7. Frey, Bruno S & Oberholzer-Gee, Felix & Eichenberger, Reiner, 1996. "The Old Lady Visits Your Backyard: A Tale of Morals and Markets," Journal of Political Economy, University of Chicago Press, vol. 104(6), pages 1297-1313, December.
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    1. Euston Quah, 2015. "Pursuing Economic Growth in Asia: The Environmental Challenge," The World Economy, Wiley Blackwell, vol. 38(10), pages 1487-1504, October.
    2. Mazzanti, Massimiliano & Montini, Anna & Nicolli, Francesco, 2010. "Waste Generation and Landfill Diversion Dynamics: Decentralised Management and Spatial Effects," Sustainable Development Papers 60660, Fondazione Eni Enrico Mattei (FEEM).
    3. Alberti, Federica & Mantilla, César, 2020. "Provision of noxious facilities using a market-like mechanism: A simple implementation in the lab," Working papers 35, Red Investigadores de Economía.
    4. Quah Euston & Iuldashov Nursultan, 2020. "Why CBA and NIMBY Syndrome Are Important Challenges to China’s BRI?," Journal of Asian Economic Integration, , vol. 2(1), pages 97-114, April.
    5. Massimiliano Mazzanti & Anna Montini & Francesco Nicolli, 2011. "Embedding landfill diversion in economic, geographical and policy settings," Applied Economics, Taylor & Francis Journals, vol. 43(24), pages 3299-3311.
    6. Taiwan Chung Hsie Yang, 2012. "The value of investment of YIMBY and NIMBY facilities on housing market," ERES eres2012_183, European Real Estate Society (ERES).
    7. Mazzanti, Massimiliano & Montini, Anna & Nicolli, Francesco, 2008. "Embedding Landfill Diversion in Economic, Geographical and Policy Settings Panel based evidence from Italy," Sustainability Indicators and Environmental Valuation Working Papers 44221, Fondazione Eni Enrico Mattei (FEEM).
    8. Fumihiro Yamane & Hideaki Ohgaki & Kota Asano, 2011. "Nuclear Power‐Related Facilities and Neighboring Land Price: A Case Study on the Mutsu‐Ogawara Region, Japan," Risk Analysis, John Wiley & Sons, vol. 31(12), pages 1969-1994, December.

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