Technology‐Neutral vs. Technology‐Specific Procurement
Professor of Economics at Universidad Carlos III de Madrid
An imperfectly informed principal (e.g. a regulator, a firm) needs to procure multiple units of a good that can be produced with heterogeneous technologies. Should she run technology‐specific or technology‐neutral auctions? Should she allow for partial separation across technologies? Should she instead post separate prices for each technology? What are the trade‐offs involved? We find that one size does not fit all: the preferred instrument depends on the nature of the available technologies, the extent of information asymmetry regarding their costs, the costs of public funds, and the degree of market power.
These questions are motivated by a fundamental challenge faced by many governments around the world in their efforts to reduce carbon emissions: how to accelerate the deployment of renewable energies (e.g., solar, wind, or biomass) and storage facilities (e.g. pumped storage or batteries) at the lowest possible fiscal cost. In practice, several instruments have been used (and continue to be used) for such purposes, e.g., quantitybased instruments such as auctions or tradeable quota obligations or price‐based instruments like Feed‐in‐Tariffs or Feed‐in‐Premia. Some of these instruments have treated technologies separately, whether by type, location and/or scale. Other instruments have been technological neutral. And yet other instruments have relied on hybrid approaches (so called technology banding) that allow for some degree of competition across technologies while favoring some over others (e.g., by deflating the bids associated to some technologies, or by granting more green certificates to some technologies).
Using Spanish data on recently deployed renewables across the country, we illustrate how our theory can shed light on how to more effectively procure these technologies in the near future. Beyond this motivation/application, the question of how to procure goods in the presence of multiple technologies is relevant in a wide variety of settings, including firm outsourcing or emissions regulation, among others.
Co authors : Juan‐Pablo Montero (PUC‐Chile)
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