Auctions As Tools to Limit Government Discretion

Michael Giberson

Auctions, especially auctions of government property, are not a tool of the rich…  As principles of market design become more thoroughly articulated and widely understood, the sphere of governmental discretion will shrink. More and more, politicians will be forced to play by the rules.

That’s David Warsh writing on the relationship between the economics of auctions and government. His main point is that when government property (anything from radio spectrum licenses to surplus office furniture) is sold by auction rather than disposed of in other ways, the tendency is for rules to limit discretion. Lobbying and personal relationships become less important, and cash deposited into government accounts becomes more important.

It might be objected that the current lobbying frenzy occasioned by the Waxman-Markey carbon emission cap-and-trade bill is a counter example. For example, from the New York Times:

Cap and trade, by contrast, is almost perfectly designed for the buying and selling of political support through the granting of valuable emissions permits to favor specific industries and even specific Congressional districts. That is precisely what is taking place now in the House Energy and Commerce Committee….

Yes, a lot of lobbying is going on. Regulation of carbon emissions will occasion a substantial increase in the influence of the government over the economy, and the consequences of that potential regulation provide significant motivation for firms to invest in lobbying.

But observe carefully, this isn’t a case in which auction tools enhance the granting of political favors. Instead it is an example of how, if you want an advantage in an auction system, your best bet is to get your advantage placed in the rules in writing up front. No CEO is saying to his board, “Don’t worry, I went to school with the guy at the EPA (or DOE or wherever) who will be in charge of the auction; he owes me a few favors, he’ll take care of us.” Instead, they are lobbying like crazy.

When the rules are in place (and the subsequent narrower lobbying over the implementing regulations, and the subsequent lawsuits roll through the courts), the ability of wealth to buy political favors will be constrained.

One thought on “Auctions As Tools to Limit Government Discretion

  1. Our congresspersons are the past masters and mistresses of the auction, offering their political “souls” to the highest bidder as often as possible. The legislative process is “rigged” to maximize the market for political favors and the desirability of campaign contributions.

    Realization of the carbon emissions reductions required by W-M would require the investment of ~$700 billion per year in low/no carbon emissions facilities and equipment between now and 2050. (That’s one TARP per year.)

    The auction process originally contemplated by the Administration would have raised an average of ~$65 billion per year from those required to achieve the emissions reductions, in addition to the investments they would be required to make. While the source of these funds was reasonably well established, the uses were characteristically “squishy”.

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