Working Paper: CEPR ID: DP15554
Authors: Natalia Fabra; Juan Pablo Montero
Abstract: An imperfectly-informed regulator needs to procure multiple units of a good that can be produced with heterogeneous technologies at various costs. Should she run technology-specific or technology-neutral auctions? Should she allow for partial separation across technologies (technology banding)? Should she instead post separate prices for each technology? What are the trade-offs involved? We find that one size does not fit all: the preferred instrument depends on the nature of the available technologies, the extent of information asymmetry regarding their costs, the costs of public funds, and the degree of market power. Using Spanish data on recently deployed renewables across the country, we illustrate how our theory can shed light on how to more effectively procure these technologies. Beyond this motivation/application, the question of how to procure public goods in the presence of multiple technologies is relevant for a wide variety of goods, including central banks liquidity,pollution reduction, or land conservation, among others.
Keywords: procurement; auctions; quantity regulation; price regulation; third degree price discrimination; market power
JEL Codes: D44; H57; L51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| optimal auction mechanism (D44) | maximize expected social benefits (D61) |
| optimal auction mechanism (D44) | minimize costs (D21) |
| technology-specific auctions (D44) | lower payments (G51) |
| technology-specific auctions (D44) | higher costs (J32) |
| technology neutrality (L96) | overcompensation of efficient suppliers (M52) |
| overcompensation of efficient suppliers (M52) | increase procurement costs (H57) |
| market power (L11) | effectiveness of procurement approaches (H57) |
| hybrid approach (MTQs) (C30) | balance payments and efficiency (D61) |
| technology-specific auctions (D44) | outperform technology-neutral auctions (D44) |
| MTQs (C30) | achieve better efficiency and lower costs (D61) |