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

Published online by Cambridge University Press:  15 September 2016

Daniel Hellerstein  and
Nathaniel Higgins
Daniel Hellerstein
Affiliation:
Economic Research Service of the U.S. Department of Agriculture in Washington, D.C.
Nathaniel Higgins
Affiliation:
Economic Research Service of the U.S. Department of Agriculture in Washington, D.C.
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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.

Keywords

conservation auctionsConservation Reserve ProgramCRPbid capsexperimental economics
Type
Contributed Papers
Information
Agricultural and Resource Economics Review , Volume 39 , Issue 2 , April 2010 , pp. 288 - 304
Copyright
Copyright © 2010 Northeastern Agricultural and Resource Economics Association 

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