This proposal outlines an approach for investigating market institutions using an extension of the highly influential experimental methods developed by the principal investigator. His past results have helped to define the field of experimental economics and have substantially contributed to our understanding of market design and structure. The current proposal seeks funding to extend this work into areas of central interest to the DRMS program, including decisions about pricing and supply made by real-world concerns and decisions about the effects of changes in incentive structures on institutional behavior. These extensions are likely to be significant, both because they represent a sensitivity to behavioral concerns on the part of researchers traditionally interested in economic theory and because they promise to extend our knowledge of an important class of institutions that combine decentralized decision making with centralized optimization models. The project should lead to new theoretical insights, by focusing on the design of institutions and exchange structures using innovative auction mechanisms, and it should lead to new applied insights, by extending knowledge of markets derived in laboratory settings to real-world case studies of natural gas pricing and utility networks.
