In his Economics of Control, A. P. Lerner threw out an interesting suggestion that where markets are imperfectly competitive, a state agency, through “counterspeculation,” might be able to create the conditions whereby the marginal conditions for efficient resource allocation could be maintained. Unfortunately, it was not made clear just how this counterspeculation was to be carried out, and to many this term denotes just one more of the empty boxes that rattle around in the economist's cupboard of ideas. And there appears to have been, in the years since Economics of Control first appeared, no attempt to examine critically just what this intriguingly labeled box might in fact contain.
In Section I this counterspeculation box will be further examined; it turns out that most of the devices that most immediately suggest themselves under this heading prove to be inordinately expensive in terms of their demands on the fiscal resources of the state relative to the net benefits to be realized, at least where the commodity in question is finely divisible. The other extreme case, where there is only a single indivisible item to be allocated, is examined in Section II; in this case the possibilities for reaching an optimum solution in a market with a limited number of participants become considerably brighter: the common or progressive type of auction can be shown to provide better chances for optimal allocation than the regressive or “Dutch” auction. The implications of these findings for the more significant cases where contracts are let or sales made by competitive bids or tenders are examined in Section III; the analysis reveals a likelihood that certain modifications of current practices in these areas, more specifically by making the award price equal to the second highest (or lowest) bid price rather than the highest bid price, might prove generally beneficial in improving the allocation of resources without being as prejudicial to the interests of sellers (or buyers) as might at first seem to be the case. Section IV deals with the somewhat more complicated and general class of cases where there are several identical items to be auctioned, and Section V deals with the application of the concepts derived in Section IV to the sale of a number of identical units under sealed-bid conditions; it turns out that here, too, significant gains can be expected from certain departures from currently prevalent practices.