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Reducing non-point source pollution through auctions: Some lessons learned from a laboratory experiment

Therese Lindahl. 2013.

Abstract:

This study compares the performance of a discriminative price auction and a uniform price auction for allocating conservation contracts to reduce non-point source pollution. In particular we evaluate (in a laboratory experiment) the influence of an environmentally based experimental design. To some extent we confirm previous results; the uniform price auction makes participants reveal their true costs. Nevertheless, the discriminative price auction is associated with higher market performance because the over-shading of bids is lower than predicted. We show that this behavior is more likely if subjects have pro-social motives and more knowledge of the problem of non-point source pollution.

Keywords: Reverse auction, price mechanism, non-point source pollution, laboratory experiments

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