A laboratory study of auctions for reducing non-point source pollution |
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Authors: | Timothy N. Cason Lata Gangadharan Charlotte Duke |
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Affiliation: | a Department of Economics, Krannert School of Management, Purdue University, West Lafayette, IN 47907-1310, USA;b Department of Economics, University of Melbourne, Victoria 3010, Australia;c Economics Branch, Department of Natural Resources and Environment, Level 13, 8 Nicholson St, East Melbourne, Victoria 3002, Australia |
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Abstract: | Non-point source pollution, such as nutrient runoff to waterways from agricultural production, is an environmental problem that typically involves asymmetric information. Land use changes to reduce pollution incur opportunity costs that are privately known to landholders, but these changes provide environmental benefits that may be more accurately estimated by regulators. This paper reports a testbed laboratory experiment in which landholder/sellers in sealed-offer auctions compete to obtain part of a fixed budget allocated by the regulator to subsidize abatement. In one treatment the regulator reveals to landholders the environmental benefits estimated for their projects, and in another treatment the regulator conceals the potential projects’ “environmental quality.” The results show that sellers’ offers misrepresent their costs more for high-quality projects when quality is revealed, so total abatement is lower and seller profits are higher when landholders know their projects’ environmental benefits. This suggests that concealing this information may improve regulatory efficiency. |
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Keywords: | Auctions Land use change Laboratory experiments Environmental regulation |
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