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Evaluating car license auction mechanisms: Theory and experimental evidence

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  • Tan, Lijia
  • Wei, Lijia

Abstract

In Singapore and many fast-growing cities of China, auctions are used to implement a quota system of car ownership. Three such cities where influential auction formats have been developed for allocating car licenses are the Asian metropolises of Singapore, Shanghai and Guangzhou, with other cities following suit. The current paper examines car auction formats both theoretically and experimentally, with the purpose of maximizing social welfare by improving efficiency and reducing misunderstandings. Reaction time is introduced as an essential non-economic factor of model bidding behaviors in these car license auctions. At the theoretical level, this paper finds that reaction time causes inefficient allocations in the Shanghai auction, but not in the Singapore or Guangzhou auctions. The experimental results are consistent with the theoretical prediction that late bids prevail in all of these auction formats, but only lead to inefficient allocations in the Shanghai auction. Additionally, the subjects' reaction time in the Shanghai treatment was scored by conducting a number comparison task, finding a positive correlation between the probability of winning and the reaction time score.

Suggested Citation

  • Tan, Lijia & Wei, Lijia, 2020. "Evaluating car license auction mechanisms: Theory and experimental evidence," China Economic Review, Elsevier, vol. 60(C).
    • Handle: RePEc:eee:chieco:v:60:y:2020:i:c:s1043951x19301488
    DOI: 10.1016/j.chieco.2019.101387
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    More about this item

    Keywords

    Car license; Multi-unit auction; Experiment; Behavior;
    All these keywords.

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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