Conservation Auctions and Compliance: Theory and Evidence from Laboratory Experiments

Abstract

Many agri-environmental conservation programs are faced with the problem of imperfect monitoring. This provides farmers with an incentive for noncompliance, because they can receive subsidies without implementing the conservation scheme. In this paper, bidding behavior and auction performance are compared for discriminatory-price and uniform-price auctions in an imperfect monitoring environment. Our theoretical analysis suggests that auction performances are equalized between the discriminatory-price and uniform-price auctions. However, laboratory experiments reveal that, although the discriminatory-price auction has an advantage in terms of reducing policy costs, it is more likely to cause adverse selection. As a result, the uniform-price auction tends to have higher efficiency and cost-effectiveness when compliance behavior is taken into account.

Incentive-Based Policy Design for Pollution Control and Biodiversity Conservation: A Review

“…This can undermine the delivery of conservation benefits and could lead to reduced cost-effectiveness of the auction mechanism. In an experimental study, Kawasaki et al (2012) find evidence indicating that, in situations where monitoring landholder compliance is imperfect, the uniform price auction results in overall greater efficiency than the discriminatory price auction.…”

Auctioning approaches for ecosystem services – Evidence and applications

“…Hailu and Schilizzi, 2005;Glebe, 2013;Iftekhar et al, 2014;Polasky et al, 2014;Lundhede et al, 2019), laboratory experiments (e.g. Latacz-Lohmann et al, 2011;Vogt et al, 2013;Vogt, 2015;Messer et al, 2017;Conte and Griffin, 2019), or a combination thereof (Kawasaki et al, 2012). These studies are mostly focused on issues related to mechanism design and bidder behavior, so they are typically decontextualized to some degree and tend not to target specific ES.…”

Ecosystem Services Auctions: The Last Decade of Research

“…Adverse selection risk is influenced by contextual variables like budget, regulatory threats, correlations between opportunity cost and ES provision, and baseline compliance [94,106] (see Section 3.5). (For a theoretical and experimental analysis of the interaction between pricing rules and compliance behavior in imperfect monitoring environments, see [122]. )…”