Undermined by adverse selection: Australia’s Direct Action abatement subsidies

This paper examines economic challenges faced by Australia’s Direct Action abatement subsidy scheme. Introduced in 2014, the scheme operates by reverse auction, funding projects voluntarily proposed by the private sector. Because the government cannot know true project counterfactuals, the lowest auction bids are likely to often be non-additional “anyway” projects. The scheme is hence likely to exhibit a systematic skew toward low-quality abatement. The paper presents a model of the adverse selection problem and describes the early experience with Direct Action. A discussion of a way forward is also provided.


Issue Date:
2016-04
Publication Type:
Working or Discussion Paper
PURL Identifier:
http://purl.umn.edu/249524
Total Pages:
22
JEL Codes:
Q58; Q52; D82




 Record created 2017-04-01, last modified 2017-08-29

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