Technology Neutral vs. Technology Specific Procurement

An imperfectly-informed regulator needs to procure multiple units of some good (e.g., green energy, market liquidity, pollution reduction, land conservation) that can be produced with heterogeneous technologies at various costs. How should it optimally procure these units? Should it run technology specific or technology neutral auctions? Should it allow for partial separation across technologies? Should it 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 costs of the available technologies, their degree of substitutability, the extent of information asymmetry, and the costs of public funds. We illustrate the use of our theory for policy analysis with an ex-ante evaluation of Spain’s recent renewable auction.