Using Laboratory Experiments for Policy Making: An Example from the Georgia Irrigation Reduction Auction

Abstract

In recent years, there has been a growing interest in policy applications of different auction systems. This paper reports on a series of experiments that were used to design and implement an auction in a unique policy-making environment. In April, 2000, the Georgia legislature passed a unique law that mandated the state hold an auction in drought years in order to pay some farmers to suspend irrigation. This paper reports the results of laboratory experiments that were used by state policy-makers to determine the auction institution that would be used to fulfill the requirements of this new law. Experimental results are compared with farmers' bidding behavior in the state-run irrigation auction used to reduce water usage in Georgia.

Keywords: experiment, auction, irrigation