The Effective Use of Limited Information: Do Bid Maximums Reduce Procurement Cost in Asymmetric Auctions?

Hellerstein, Daniel and Higgins, Nathaniel (2010): The Effective Use of Limited Information: Do Bid Maximums Reduce Procurement Cost in Asymmetric Auctions? Published in: Agricultural and Resource Economics Review , Vol. 2, No. 39 (April 2010): pp. 288-304.

Abstract

Conservation programs faced with limited budgets often use a competitive enrollment mechanism. Goals of enrollment might include minimizing program expenditures, encouraging broad participation, and inducing adoption of enhanced environmental practices. We use experimental methods to evaluate an auction mechanism that incorporates bid maximums and quality adjustments. We examine this mechanism’s performance characteristics when opportunity costs are heterogeneous across potential participants, and when costs are only approximately known by the purchaser. We find that overly stringent maximums can increase overall expenditures, and that when quality of offers is important, substantial increases in offer maximums can yield a better quality-adjusted result.

• Item Type: MPRA Paper
• Language: English
• Keywords: conservation auctions, Conservation Reserve Program, CRP, bid caps, experimental economics
• Subjects: D - Microeconomics > D4 - Market Structure, Pricing, and Design > D44 - Auctions; C - Mathematical and Quantitative Methods > C9 - Design of Experiments > C91 - Laboratory, Individual Behavior; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics > Q58 - Government Policy

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