[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/tin/wpaper/20230046.html
   My bibliography  Save this paper

A Wind Tunnel Test of Wind Farm Auctions

Author

Listed:
  • Xinyu Li

    (PBL Netherlands)

  • Marco Haan

    (University of Amsterdam)

  • Sander Onderstal

    (University of Groningen)

  • Jasper Veldman

    (University of Amsterdam)

Abstract
Globally, governments increasingly rely on auctions to advance renewable energy. This paper studies the design of wind farm auctions and evaluates the impact of price guarantees and subsidies on auction efficiency, government revenue, and renewable-energy production. While the theoretical analysis suggests that the price guarantee has no effect, our laboratory experiment suggests that the price guarantee improves efficiency and that it often increases production and revenue. An important explanation for these results is that less risk averse subjects tend to bid less aggressively and produce less. Without the price guarantee, and hence with more uncertainty in the auction, this increases the chances that risk-loving bidders win the auction, thus compromising auction efficiency. The subsidy is less effective than suggested by theory. Bidders with a higher valuation tend to bid more conservatively than the equilibrium prediction, thus neutralizing the efficiency-enhancing effect of the subsidy.

Suggested Citation

  • Xinyu Li & Marco Haan & Sander Onderstal & Jasper Veldman, 2023. "A Wind Tunnel Test of Wind Farm Auctions," Tinbergen Institute Discussion Papers 23-046/VII, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:20230046
    as

    Download full text from publisher

    File URL: https://papers.tinbergen.nl/23046.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Jansen, Malte & Beiter, Philipp & Riepin, Iegor & Müsgens, Felix & Guajardo-Fajardo, Victor Juarez & Staffell, Iain & Bulder, Bernard & Kitzing, Lena, 2022. "Policy choices and outcomes for offshore wind auctions globally," Energy Policy, Elsevier, vol. 167(C).
    2. Bikhchandani, Sushil & Riley, John G., 1991. "Equilibria in open common value auctions," Journal of Economic Theory, Elsevier, vol. 53(1), pages 101-130, February.
    3. Matthäus, David, 2020. "Designing effective auctions for renewable energy support," Energy Policy, Elsevier, vol. 142(C).
    4. Thomas Dohmen & Armin Falk & David Huffman & Uwe Sunde & Jürgen Schupp & Gert G. Wagner, 2011. "Individual Risk Attitudes: Measurement, Determinants, And Behavioral Consequences," Journal of the European Economic Association, European Economic Association, vol. 9(3), pages 522-550, June.
    5. Johnston, Barry & Foley, Aoife & Doran, John & Littler, Timothy, 2020. "Levelised cost of energy, A challenge for offshore wind," Renewable Energy, Elsevier, vol. 160(C), pages 876-885.
    6. Onderstal, Sander, 2009. "Bidding for the unemployed: An application of mechanism design to welfare-to-work programs," European Economic Review, Elsevier, vol. 53(6), pages 715-722, August.
    7. Theo Offerman, 2002. "Efficiency in Auctions with Private and Common Values: An Experimental Study," American Economic Review, American Economic Association, vol. 92(3), pages 625-643, June.
    8. Kagel, John H. & Levin, Dan, 1986. "The Winner's Curse and Public Information in Common Value Auctions," American Economic Review, American Economic Association, vol. 76(5), pages 894-920, December.
    9. Bull, Clive & Schotter, Andrew & Weigelt, Keith, 1987. "Tournaments and Piece Rates: An Experimental Study," Journal of Political Economy, University of Chicago Press, vol. 95(1), pages 1-33, February.
    10. Jacob K. Goeree & Theo Offerman, 2003. "Competitive Bidding in Auctions with Private and Common Values," Economic Journal, Royal Economic Society, vol. 113(489), pages 598-613, July.
    11. Malte Jansen & Iain Staffell & Lena Kitzing & Sylvain Quoilin & Edwin Wiggelinkhuizen & Bernard Bulder & Iegor Riepin & Felix Müsgens, 2020. "Offshore wind competitiveness in mature markets without subsidy," Nature Energy, Nature, vol. 5(8), pages 614-622, August.
    12. Lalive Rafael & Schmutzler Armin, 2008. "Entry in Liberalized Railway Markets: The German Experience," Review of Network Economics, De Gruyter, vol. 7(1), pages 1-16, March.
    13. Goeree, Jacob K. & Holt, Charles A., 2010. "Hierarchical package bidding: A paper & pencil combinatorial auction," Games and Economic Behavior, Elsevier, vol. 70(1), pages 146-169, September.
    14. Marcus Giamattei & Kyanoush Seyed Yahosseini & Simon Gächter & Lucas Molleman, 2020. "LIONESS Lab: a free web-based platform for conducting interactive experiments online," Journal of the Economic Science Association, Springer;Economic Science Association, vol. 6(1), pages 95-111, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Choi, Syngjoo & Guerra, José-Alberto & Kim, Jinwoo, 2019. "Interdependent value auctions with insider information: Theory and experiment," Games and Economic Behavior, Elsevier, vol. 117(C), pages 218-237.
    2. De Silva, Dakshina G. & Dunne, Timothy & Kankanamge, Anuruddha & Kosmopoulou, Georgia, 2008. "The impact of public information on bidding in highway procurement auctions," European Economic Review, Elsevier, vol. 52(1), pages 150-181, January.
    3. Theo Offerman, 2002. "Efficiency in Auctions with Private and Common Values: An Experimental Study," American Economic Review, American Economic Association, vol. 92(3), pages 625-643, June.
    4. Theo Offerman & Giorgia Romagnoli & Andreas Ziegler, 2022. "Why are open ascending auctions popular? The role of information aggregation and behavioral biases," Quantitative Economics, Econometric Society, vol. 13(2), pages 787-823, May.
    5. Shahriar, Quazi & Wooders, John, 2011. "An experimental study of auctions with a buy price under private and common values," Games and Economic Behavior, Elsevier, vol. 72(2), pages 558-573, June.
    6. Wei-Shiun Chang & Timothy C. Salmon & Krista J. Saral, 2016. "Procurement Auctions With Renegotiation And Wealth Constraints," Economic Inquiry, Western Economic Association International, vol. 54(3), pages 1684-1704, July.
    7. Mun Chuia & David Porter & Stephen Rassenti & Vernon Smith, 2011. "The Effect of Bidding Information in Ascending Auctions," Working Papers 11-13, Chapman University, Economic Science Institute.
    8. Athias, Laure & Nunez, Antonio, 2008. "The more the merrier? Number of bidders, information dispersion, renegotiation and winner’s curse in toll road concessions," MPRA Paper 10539, University Library of Munich, Germany.
    9. Yili Hong & Chong (Alex) Wang & Paul A. Pavlou, 2016. "Comparing Open and Sealed Bid Auctions: Evidence from Online Labor Markets," Information Systems Research, INFORMS, vol. 27(1), pages 49-69, March.
    10. Vlad Mares & Mikhael Shor, 2003. "Joint Bidding in Common Value Auctions: Theory and Evidence," Game Theory and Information 0305001, University Library of Munich, Germany.
    11. Kosmopoulou, Georgia & De Silva, Dakshina G., 2007. "The effect of shill bidding upon prices: Experimental evidence," International Journal of Industrial Organization, Elsevier, vol. 25(2), pages 291-313, April.
    12. Kagel, John H., 1995. "Cross-game learning: Experimental evidence from first-price and English common value auctions," Economics Letters, Elsevier, vol. 49(2), pages 163-170, August.
    13. Zubanov, Nick & Cadsby, Bram & Song, Fei, 2017. "The," IZA Discussion Papers 10542, Institute of Labor Economics (IZA).
    14. Simon Stevenson & James Young, 2015. "The Role of Undisclosed Reserves in English Open Outcry Auctions," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 43(2), pages 375-402, June.
    15. repec:cup:judgdm:v:3:y:2008:i:7:p:483-492 is not listed on IDEAS
    16. Breitmoser, Yves, 2019. "Knowing me, imagining you: Projection and overbidding in auctions," Games and Economic Behavior, Elsevier, vol. 113(C), pages 423-447.
    17. Noussair, Charles N. & Seres, Gyula, 2020. "The effect of collusion on efficiency in experimental auctions," Games and Economic Behavior, Elsevier, vol. 119(C), pages 267-287.
    18. Vincent P. Crawford & Nagore Iriberri, 2007. "Level-k Auctions: Can a Nonequilibrium Model of Strategic Thinking Explain the Winner's Curse and Overbidding in Private-Value Auctions?," Econometrica, Econometric Society, vol. 75(6), pages 1721-1770, November.
    19. Goeree, Jacob K. & Offerman, Theo, 2003. "Winner's curse without overbidding," European Economic Review, Elsevier, vol. 47(4), pages 625-644, August.
    20. Dakshina G. De Silva & Timothy Dunne & Georgia Kosmopoulou, 2003. "An Empirical Analysis of Entrant and Incumbent Bidding in Road Construction Auctions," Journal of Industrial Economics, Wiley Blackwell, vol. 51(3), pages 295-316, September.
    21. Hongyun Zhang & Michael G. Pollitt, 2023. "Comparison of policy instruments in the development process of offshore wind power in North Sea countries," Working Papers EPRG2323, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.

    More about this item

    Keywords

    Auctions; Experiments; Wind farms; Renewable energy;
    All these keywords.

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • F64 - International Economics - - Economic Impacts of Globalization - - - Environment
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:tin:wpaper:20230046. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Tinbergen Office +31 (0)10-4088900 (email available below). General contact details of provider: https://edirc.repec.org/data/tinbenl.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.