A public policy auction system for providing a monetary incentive for the adaption of efficient public policies. The system generally comprises a series of hierarchical negotiations and auctions for the proprietary right to receive a portion of the savings generated from the efficiency of a given public policy. The method begins with a registration phase during which information is collected on the proponents of new public policies, and shares are established for a portion of the approximate distribution of savings gained by implementation of the efficient public policy. The shares are auctioned to potential constituents during an active auction. The active auction method includes penalties to force constituents to combine and pool their bids, thereby encouraging cooperation and minimizing frivolous bids. The active auction is complemented by an innovator auction in which a predetermined number of policy innovators are selected to become competing bidders, and a predetermined interval of time is established before additional innovators may participate. The initial innovators negotiate a share of research and development expense to be borne by subsequent innovators, and all subsequent innovators are required to pay their share to the existing group. Potential subscribers to the policy may bid, and if the buyer accepts the innovator's bid, the subscriber is charged the amount of the bid. The winning buyer must try to provide an acceptable profit to the competing innovators at the lowest price for the government or penalties are imposed. The entire system is administered over the internet by a series of software modules. The net result is the creation of a free market for the savings gained by more efficient public policies, the market giving an incentive for the research and development of new efficient public policies and allowing the public and the innovator to sharing the resulting economic benefit.