Number Plate Auctions Come Highly Recommended

Ronald Coase first proposed auctioning the airwave spectrum in a paper in Journal of Law and Economics in 1959, and William Vickrey later pushed auctions for many years. In fact, the second price auction format was named the Vickrey auction in honor of his historic role in promoting this efficient resource allocation mechanism.

The auction theory has been so extensively studied in the economics literature that the joke is there are more auction papers (mine included) than actual auctions happening.

In China, one auction concerns Beijing’s allotment of automobile license plates. Beijing’s traffic congestion problem is getting out of control, and so is the municipal government’s series of brute-force measures in response.

The quota imposed since the beginning of this year is on course to mow auto sales in Beijing by more than half, killing half of the auto dealer economy worth at least 1 billion yuan (US$153.8 million) based on my calculation. Dozens of dealers will close their doors, and thousands of sales jobs will go down the drain.

And yet at the same time, the Beijing municipal government is in the process of a 14 billion yuan giveaway through its disastrous license plate lottery system.

How do I come up with this 14 billion yuan number? Just look at Shanghai.

Shanghai officially started using auctions to issue license plates in 1994. As of 2007, the accumulated proceeds from these auctions over 14 years totals close to 14 billion yuan. The bulk of the money has been spent on the subway system and the mid-ring freeway project in Shanghai. And for that, I thank each mayor of Shanghai in the last 14 years.