This research project will experimentally investigate the actual consequences of the Maskin auction
and the other two types of auctions, with both sealed-bid and dynamic-bid design, in the context of
subsidy allocation for carbon reduction.
Greenhouse gas emissions, as the major contributors to climate change, have attracted
increasing more attention from policy makers across developed countries to developing countries. The
direct allocation of subsidy for greenhouse gas emission reduction by auction is an emerging means
for government-oriented emission reduction programs. This study is motivated by the observation that
many major implementations of carbon emission reduction policy for the control of air pollution have
started with potential auction design for selling government-provided subsidy. We are planning to use
a laboratory experimental setting to investigate the effects of a variety of auction designs for subsidy
allocation on carbon emission reduction in China. In particular, we will test the actual performance of
the theoretical optimal auction mechanism for emission reduction subsidy allocation designed by
Maskin (2011) via the experimental auction market. Our experimental design enables us to discover
the impacts of different mechanisms and policy parameters. We expect that the traditional auction
formats such as discrimination and uniform-price auction has better performance in the short run,
while the newly designed Maskin auction will achieve social optimal in the long term with the
experience being learnt. The results will help to start understanding how these instruments perform in
a controlled environment. This is a first step in moving from theory to application.
