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A Laboratory Comparison of Uniform and Discriminative Price Auctions for Reducing Non-point Source Pollution

  • Timothy N. Cason
  • Lata Gangadharan

Auctions allow regulators to identify land management changes with substantial environmental benefit and low opportunity cost. This paper reports an experiment in which seller subjects compete in sealed-offer auctions to obtain part of a fixed budget allocated by the experimenter-regulator to subsidize pollution abatement. One treatment employs uniform-price auction rules, whereas another treatment employs discriminative price auction rules. We find that most offers in the uniform-price auction are within 2% of cost, whereas most offers in the discriminative price auction are at least 8% greater than cost. Nevertheless, the discriminativeprice auction has superior overall market performance.

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File URL: http://le.uwpress.org/cgi/reprint/81/1/51
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Article provided by University of Wisconsin Press in its journal Land Economics.

Volume (Year): 81 (2005)
Issue (Month): 1 ()
Pages:

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Handle: RePEc:uwp:landec:v:81:y:2005:i:1:p51-70
Contact details of provider: Web page: http://le.uwpress.org/

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  1. Smith, Vernon L, 1982. "Microeconomic Systems as an Experimental Science," American Economic Review, American Economic Association, vol. 72(5), pages 923-55, December.
  2. Cox, James C & Smith, Vernon L & Walker, James M, 1984. " Theory and Behavior of Multiple Unit Discriminative Auctions," Journal of Finance, American Finance Association, vol. 39(4), pages 983-1010, September.
  3. Holt, Charles A, Jr, 1980. "Competitive Bidding for Contracts under Alternative Auction Procedures," Journal of Political Economy, University of Chicago Press, vol. 88(3), pages 433-45, June.
  4. Uwe Latacz-Lohmann & Carel Van der Hamsvoort, 1997. "Auctioning Conservation Contracts: A Theoretical Analysis and an Application," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(2), pages 407-418.
  5. Maskin, Eric & Riley, John, 2000. "Asymmetric Auctions," Review of Economic Studies, Wiley Blackwell, vol. 67(3), pages 413-38, July.
  6. Umlauf, Steven R., 1993. "An empirical study of the Mexican Treasury bill auction," Journal of Financial Economics, Elsevier, vol. 33(3), pages 313-340, June.
  7. Kagel, John H & Harstad, Ronald M & Levin, Dan, 1987. "Information Impact and Allocation Rules in Auctions with Affiliated Private Values: A Laboratory Study," Econometrica, Econometric Society, vol. 55(6), pages 1275-1304, November.
  8. Milgrom, Paul, 1989. "Auctions and Bidding: A Primer," Journal of Economic Perspectives, American Economic Association, vol. 3(3), pages 3-22, Summer.
  9. Back, Kerry & Zender, Jaime F, 1993. "Auctions of Divisible Goods: On the Rationale for the Treasury Experiment," Review of Financial Studies, Society for Financial Studies, vol. 6(4), pages 733-64.
  10. Sushil Bikhchandani & Chi-fu Huang, 1993. "The Economics of Treasury Securities Markets," Journal of Economic Perspectives, American Economic Association, vol. 7(3), pages 117-134, Summer.
  11. Cason, Timothy N. & Gangadharan, Lata & Duke, Charlotte, 2003. "A laboratory study of auctions for reducing non-point source pollution," Journal of Environmental Economics and Management, Elsevier, vol. 46(3), pages 446-471, November.
  12. Tenorio, Rafael, 1993. "Revenue Equivalence and Bidding Behavior in a Multi-unit Auction Market: An Empirical Analysis," The Review of Economics and Statistics, MIT Press, vol. 75(2), pages 302-14, May.
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