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

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 discriminative-price auction has superior overall market performance. (JEL C91, Q15)