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Dynamic Entry, Reverse Auctions, and the Purchase of Environmental Services

Author

Listed:
  • Jacob R. Fooks
  • Kent D. Messer
  • Joshua M. Duke

Abstract

This research uses economic experiments to examine the effectiveness of reverse auction institutions in an endogenous dynamic entry setting. Induced values are used to compare behavior in dynamic and static auction structures. Past research on this topic has understudied dynamic elements such as strategic entry and endogenous bidder selection that arise in a dynamic environment. The results suggest complex behavioral patterns in which some sellers overenter early and others strategically wait. This affects the owners’ abilities to extract rents in a dynamic setting. This result impacts policy effectiveness because previous work overlooking these dynamic elements likely understates auction cost-effectiveness.

Suggested Citation

  • Jacob R. Fooks & Kent D. Messer & Joshua M. Duke, 2015. "Dynamic Entry, Reverse Auctions, and the Purchase of Environmental Services," Land Economics, University of Wisconsin Press, vol. 91(1), pages 57-75.
    • Handle: RePEc:uwp:landec:v:91:y:2015:i:1:p:57-75
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    References listed on IDEAS

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    1. Schilizzi, Steven & Latacz-Lohmann, Uwe, 2007. "Assessing the performance of conservation auctions: an experimental study," 2007 Conference (51st), February 13-16, 2007, Queenstown, New Zealand 10436, Australian Agricultural and Resource Economics Society.
    2. Michael A. Arnold & Joshua M. Duke & Kent D. Messer, 2013. "Adverse Selection in Reverse Auctions for Ecosystem Services," Land Economics, University of Wisconsin Press, vol. 89(3), pages 387-412.
    3. Thilo W. Glebe, 2013. "Conservation Auctions: Should Information about Environmental Benefits Be Made Public?," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 95(3), pages 590-605.
    4. Messer, Kent D. & Allen, William L., III, 2010. "Applying Optimization and the Analytic Hierarchy Process to Enhance Agricultural Preservation Strategies in the State of Delaware," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 39(3), pages 1-15, October.
    5. Susan Athey & Jonathan Levin & Enrique Seira, 2011. "Comparing open and Sealed Bid Auctions: Evidence from Timber Auctions," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 126(1), pages 207-257.
    6. Ruben N. Lubowski & Michael J. Roberts, 2005. "How Cost-Effective Are Land Retirement Auctions? Estimating the Difference between Payments and Willingness to Accept in the Conservation Reserve Program," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 87(5), pages 1239-1247.
    7. John Rolfe & Jill Windle & Juliana McCosker, 2009. "Testing and Implementing the Use of Multiple Bidding Rounds in Conservation Auctions: A Case Study Application," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 57(3), pages 287-303, September.
    8. Claassen, Roger & Cattaneo, Andrea & Johansson, Robert, 2008. "Cost-effective design of agri-environmental payment programs: U.S. experience in theory and practice," Ecological Economics, Elsevier, vol. 65(4), pages 737-752, May.
    9. Joshua M. Duke & Lori Lynch, 2006. "Farmland Retention Techniques: Property Rights Implications and Comparative Evaluation," Land Economics, University of Wisconsin Press, vol. 82(2), pages 189-213.
    10. Steven Schilizzi & Uwe Latacz-Lohmann, 2007. "Assessing the Performance of Conservation Auctions: An Experimental Study," Land Economics, University of Wisconsin Press, vol. 83(4), pages 497-515.
    11. Markus Groth, 2008. "Private ex-ante transaction costs for repeated biodiversity conservation auctions: a case study," Working Paper Series in Economics 84, University of Lüneburg, Institute of Economics.
    12. Kagel, John H & Levin, Dan, 2001. "Behavior in Multi-unit Demand Auctions: Experiments with Uniform Price and Dynamic Vickrey Auctions," Econometrica, Econometric Society, vol. 69(2), pages 413-454, March.
    13. Nancy Bockstael, 2008. "An Empirical Examination of the Timing of Land Conversions in the Presence of Farmland Preservation Programs," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 90(3), pages 613-626.
    14. Bernard, John C. & Mount, Timothy D. & Schulze, William D., 1998. "Alternative Auction Institutions For Electric Power Markets," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 27(2), pages 1-7, October.
    15. Timothy N. Cason & Lata Gangadharan, 2004. "Auction Design for Voluntary Conservation Programs," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 86(5), pages 1211-1217.
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    Cited by:

    1. Frans P. Vries & Nick Hanley, 2016. "Incentive-Based Policy Design for Pollution Control and Biodiversity Conservation: A Review," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 63(4), pages 687-702, April.
    2. Lundberg, Liv & Persson, U. Martin & Alpizar, Francisco & Lindgren, Kristian, 2018. "Context Matters: Exploring the Cost-effectiveness of Fixed Payments and Procurement Auctions for PES," Ecological Economics, Elsevier, vol. 146(C), pages 347-358.
    3. Wallander, Steven & Hellerstein, Daniel M. & Johnsen, Reid, 2018. "Cost Effectiveness of Conservation Auctions Revisited: The Benefits of Information Rents," 2018 Annual Meeting, August 5-7, Washington, D.C. 274457, Agricultural and Applied Economics Association.
    4. Leah H. Palm-Forster & Paul J. Ferraro & Nicholas Janusch & Christian A. Vossler & Kent D. Messer, 2019. "Behavioral and Experimental Agri-Environmental Research: Methodological Challenges, Literature Gaps, and Recommendations," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 73(3), pages 719-742, July.
    5. Jacob R. Fooks & Kent D. Messer & Maik Kecinski, 2018. "A Cautionary Note on the Use of Benefit Metrics for Cost-Effective Conservation," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 71(4), pages 985-999, December.
    6. Sharma, Bijay P. & Cho, Seong-Hoon & Yu, T. Edward, 2019. "Designing cost-efficient payments for forest-based carbon sequestration: An auction-based modeling approach," Forest Policy and Economics, Elsevier, vol. 104(C), pages 182-194.
    7. Messer, Kent D. & Duke, Joshua M. & Lynch, Lori & Li, Tongzhe, 2017. "When Does Public Information Undermine the Efficiency of Reverse Auctions for the Purchase of Ecosystem Services?," Ecological Economics, Elsevier, vol. 134(C), pages 212-226.
    8. Bruno Wichmann & Peter Boxall & Scott Wilson & Orsolya Pergery, 2017. "Auctioning Risky Conservation Contracts," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 68(4), pages 1111-1144, December.

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    More about this item

    JEL classification:

    • Q24 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Land
    • Q57 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Ecological Economics

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