Environmental services auctions under regulatory threat

Ecosystem Services Auctions: The Last Decade of Research

“…Auctions may face efficiency-effectiveness-equity (EEE) trade-offs [94,106], as observed in the Andes and Tanzania [20,81]; for instance, the latter may have negatively impacted the land rights of local women (p. 78). In Kenya, Andeltová et al [13] found that targeting the participation of women may simultaneously improve key dimensions of gender equity as well as auction effectiveness-albeit at the risk of exacerbating gender-based labor disparities (see Section 3.5.3).…”

“…Distinguishing high-and low-threat parcels is difficult [112,117], and threat targeting can induce harmful behaviors like jeopardizing previously-secure resources as a profit-seeking strategy [75]. 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].…”

“…Auction niche. Auctions are often framed as responses to the shortcomings of alternative instruments (e.g., [18,40]), but policy tools' cost-benefit profiles depend on factors like regulatory regime, property rights allocation, policy conflicts, and contract law [100,101,106,135]. Narloch et al [19,20] and Pirard [128] distinguish reverse auctions from other MBIs mainly on the basis of price discovery, disincentives to free-ride or rentseek, and transaction costs.…”

“…Auctions can impose substantial informational and administrative burdens on the principal, and present bidders with unique transaction costs [91] (p. 18). Simple fixed taxes may be less accommodating to heterogeneities, but can sometimes sidestep DPAs' pesky adverse selection problems and improve cost-effectiveness if set correctly [106,117]. (See Vergamini et al [136] for a contrasting view that finds DPAs to be more cost-effective than flat payments when bidders make two-attribute (price plus benefit) bids.…”

“…If the government fails to achieve its goals through an auction, might it impose regulations even more burdensome than the proposed contract? Holmes [106] finds that threatening to do so can constrain bid inflation, but following through entails adverse selection costs (p. 590). If the perceived risk of regulatory intervention is acute, landowners could theoretically deflate bids and risk winner's curse to protect option values.…”