A Laboratory Study of Auctions for Reducing Non-Point Source Pollution

Timothy Cason, Lata Gangadharan () and Charlotte Duke

No 174066, 2002 Conference (46th), February 13-15, 2002, Canberra, Australia from Australian Agricultural and Resource Economics Society

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 multi-round, sealed-offer auctions compete to obtain part of a fixed budget allocated by the regulator to subsidize pollution abatement. In one treatment the regulator reveals to landholders the environmental benefits estimated for their alternative 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.

Keywords: Agricultural and Food Policy; Environmental Economics and Policy; Productivity Analysis; Resource/Energy Economics and Policy (search for similar items in EconPapers)
Pages: 44
Date: 2002-02
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https://ageconsearch.umn.edu/record/174066/files/Cason.pdf (application/pdf)

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Journal Article: A laboratory study of auctions for reducing non-point source pollution (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:aare02:174066

DOI: 10.22004/ag.econ.174066

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