The Role of Auctions in Allocating Public Resources

Governments are increasingly recognising the potential of auctions as a tool for allocating public resources. Spectrum licences, conservation funds, pollutant emission permits, power supply contracts and water rights have now been allocated at auction.

Productivity Commission researchers, in a paper released today, show that auctions can assign resources to those best able to use them; they are more transparent and less subjective than administrative allocation. Effective use of auctions in the public sector, however, depends on understanding auction design and its implications for pursuing policy goals.

The staff research paper, The Role of Auctions in Allocating Public Resources, provides a primer and overview of auction theory to assist governments in using this tool. It includes two case studies that illustrate specific design issues in auctions of conservation contracts and spectrum auctions.