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Undermined by Adverse Selection: Australia's Direct Action Abatement Subsidies

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  • Paul J. Burke

Abstract

This paper examines economic challenges faced by Australia’s Direct Action abatement subsidy scheme. Introduced in 2014, the scheme operates by reverse auction, funding projects voluntarily proposed by the private sector. Because the government cannot know true project counterfactuals, the lowest auction bids are likely to often be non-additional “anyway” projects. The scheme is hence likely to exhibit a systematic skew toward low-quality abatement. The paper presents a model of the adverse selection problem and describes the early experience with Direct Action. A discussion of a way forward is also provided.
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Suggested Citation

  • Paul J. Burke, 2016. "Undermined by Adverse Selection: Australia's Direct Action Abatement Subsidies," Economic Papers, The Economic Society of Australia, vol. 35(3), pages 216-229, September.
  • Handle: RePEc:bla:econpa:v:35:y:2016:i:3:p:216-229
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    File URL: http://hdl.handle.net/10.1111/1759-3441.12138
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    1. repec:eee:ecolec:v:146:y:2018:i:c:p:347-358 is not listed on IDEAS
    2. repec:eee:energy:v:145:y:2018:i:c:p:468-476 is not listed on IDEAS
    3. repec:eee:enepol:v:109:y:2017:i:c:p:96-108 is not listed on IDEAS

    More about this item

    JEL classification:

    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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