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Low-bid Auction Versus High-bid Auction For Siting Noxious Facilities in a Two-city Region: an Exact Approach

Author

Listed:
  • Alain Jean-Marie
  • Nicolas Marchetti
  • Mabel Tidball

Abstract

Two auctions have been proposed in the literature for siting noxious facilities: the high-bid and the low-bid auctions. In this paper, we pursue the analysis of these auctions made by O'Sullivan [1993], where he concludes that the high-bid auction has the edge over the low-bid auction. We point out that O'Sullivan has made an approximation for the expected value of the compensation obtained with the high-bid auction, and we show how to obtain the exact value. We discuss a paradox linked with O'Sullivan's result, which mitigates his conclusions, and we show that with exact compensation, the high-bid auction mechanism is indeed far superior to the low-bid auction Deux enchères ont été proposées dans la littérature pour localiser les biens publics générateurs de nuisances : l'enchère à compensation haute et l'enchère à compensation basse. Dans ce papier, nous poursuivons l'analyse faite par O'Sullivan [1993] de ces deux enchères, dans laquelle il conclut que l'enchère à compensation haute domine l'enchère à compensation basse. Nous soulignons le fait que O'Sullivan a utilisé une approximation pour la valeur espérée de la compensation dans l'enchère à compensation haute et nous montrons comment obtenir la valeur exacte. Nous discutons d'un paradoxe, lié au résultat de O'Sullivan, qui nuance ses conclusions, et nous montrons qu'avec la compensation exacte l'enchère à compensation haute est largement supérieure à l'enchère à compensation basse

Suggested Citation

  • Alain Jean-Marie & Nicolas Marchetti & Mabel Tidball, 2004. "Low-bid Auction Versus High-bid Auction For Siting Noxious Facilities in a Two-city Region: an Exact Approach," CIRANO Working Papers 2004s-52, CIRANO.
    • Handle: RePEc:cir:cirwor:2004s-52
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    1. Richardson, James & Kunreuther, Howard, 1993. "Experimental test of a Nash-efficient mechanism for collective choice with compensation," Journal of Economic Behavior & Organization, Elsevier, vol. 22(3), pages 349-369, December.
    2. Kunreuther, Howard & Kleindorfer, Paul & Knez, Peter J. & Yaksick, Rudy, 1987. "A compensation mechanism for siting noxious facilities: Theory and experimental design," Journal of Environmental Economics and Management, Elsevier, vol. 14(4), pages 371-383, December.
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    2. Martin Besfamille & Jean-Marie Lozachmeur, 2010. "NIMBY and mechanism design under different constitutional constraints," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 17(2), pages 114-132, April.

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