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Predicting the performance of conservation tenders when information on bidders's costs is limited

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Author Info
Schilizzi, Steven
Latacz-Lohmann, Uwe
Abstract

Buying environmental services from private landholders using tendering mechanisms are usually subject to a budget constraint. Auction theory has mostly focused on target-constrained auctions and is not well developed for this type of auction. This paper examines the predictive capacity of a simple model developed for budget-constrained tenders, already used to design new conservation programs, by submitting it to controlled lab experiments. We study the capacity of the model to predict both experimental bids and the performance of the auction institution, based on the kind of limited information typically available to a conservation agency. We conclude there exists an optimal level of information on bidders’ costs, neither too large nor to small, making the tender worth considering as a policy option as well as allowing an ex-ante assessment of its economic performance.

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Paper provided by Australian Agricultural and Resource Economics Society in its series 2009 Conference (53rd), February 11-13, 2009, Cairns, Australia with number 48171.

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Date of creation: 2009
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Handle: RePEc:ags:aare09:48171

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Keywords: Auctions; procurement; tenders; conservation; learning; economic experiments;

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  1. Klemperer, P., 1999. "Auction Theory: a Guide to the Literature," Economics Papers 1999-w12, Economics Group, Nuffield College, University of Oxford.
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  2. McAfee, R Preston & McMillan, John, 1987. "Auctions and Bidding," Journal of Economic Literature, American Economic Association, vol. 25(2), pages 699-738, June. [Downloadable!] (restricted)
  3. Paul Klemperer, 2004. "Auctions: Theory and Practice," Economics Papers 2004-W09, Economics Group, Nuffield College, University of Oxford. [Downloadable!]
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  4. Johansson, Robert, 2006. "Participant Bidding Enhances Cost Effectiveness," Economic Brief 34085, United States Department of Agriculture, Economic Research Service. [Downloadable!]
  5. 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. [Downloadable!] (restricted)
  6. Milgrom, Paul, 1989. "Auctions and Bidding: A Primer," Journal of Economic Perspectives, American Economic Association, vol. 3(3), pages 3-22, Summer. [Downloadable!] (restricted)
  7. Schilizzi, Steven & Latacz-Lohman, 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. [Downloadable!]
  8. Cason, Timothy N. & Gangadharan, Lata & Duke, Charlotte, 2003. "A laboratory study of auctions for reducing non-point source pollution," Journal of Environmental Economics and Management, Elsevier, vol. 46(3), pages 446-471, November. [Downloadable!] (restricted)
  9. Gary Stoneham & Vivek Chaudhri & Arthur Ha & Loris Strappazzon, 2003. "Auctions for conservation contracts: an empirical examination of Victoria's BushTender trial," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society and Blackwell Publishing Asia Pty Ltd., vol. 47(4), pages 477-500, December. [Downloadable!] (restricted)
  10. Paul R. Milgrom, 1985. "Auction Theory," Cowles Foundation Discussion Papers 779, Cowles Foundation, Yale University. [Downloadable!]
  11. Francesco Guala & Luigi Mittone, 2005. "Experiments in economics: External validity and the robustness of phenomena," Journal of Economic Methodology, Taylor and Francis Journals, vol. 12(4), pages 495-515, December. [Downloadable!] (restricted)
  12. Arthur Schram, 2005. "Artificiality: The tension between internal and external validity in economic experiments," Journal of Economic Methodology, Taylor and Francis Journals, vol. 12(2), pages 225-237, June. [Downloadable!] (restricted)
  13. Paul Klemperer, 2002. "What Really Matters in Auction Design," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 169-189, Winter. [Downloadable!] (restricted)
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  14. Uwe Latacz-Lohmann & Carel P. C. M. Hamsvoort, 1998. "Auctions as a Means of Creating a Market for Public Goods from Agriculture," Journal of Agricultural Economics, Blackwell Publishing, vol. 49(3), pages 334-345. [Downloadable!] (restricted)
  15. Timothy N. Cason & Lata Gangadharan, 2005. "A Laboratory Comparison of Uniform and Discriminative Price Auctions for Reducing Non-point Source Pollution," Land Economics, University of Wisconsin Press, vol. 81(1). [Downloadable!] (restricted)
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