Application of Combinatorial Auctions on Allocation of Public Financial Support in the Area of Environmental Protection: Economic Laboratory Experiment

This paper presents results of repeated economic lab experiments. They were designed to test a model of combinatorial auctions on the case of providing financial support (capital investment subsidies) to polluters. Combinatorial auctions are those auctions in which bidders can place bids on combinations of items. The advantage of combinatorial auctions is that the bidder can more fully express his preferences. This is particular important when items are complements. In the experiment presented in the paper, the polluters have two options: (i) to invest individually or (ii) create coalitions, i.e. to prepare and realize common capital investment projects. The common model of combinatorial auctions is described first in the paper. The design of the laboratory experiment is presented in the next section and the results are shown in the last section.