Agri-environmental measures and farmers’ rent: evaluating the potential contribution of auctions to increase the efficiency of Agri-environmental schemes in Emilia-Romagna (Italy)

This work compares the cost-effectiveness of a simulated auction model (AM) with that of classical payment mechanisms as a marginal flat rate payment (MFR) and average flat rate payment (FR). The study provide an extension of the one-shot budget constrained auction model (BC) first introduced by Latacz-Lohmann and Van Der Hamsvoort (1997), and subsequently by Viaggi et al. (2008) and Glebe (2008). In this formulation, the model allows farmers to offer multi-dimensional bid as a combination of payment and a measure of a share of their land to commit to a hypothetical agri-environmental measure (AEM). The results show that the performance of the auction (i.e. 7.5 % and 27 % of the total UAA of the sample) is always located halfway between that of FR (i.e. 5% and 21 % of the total UAA of the sample) and that of MFR (i.e. 17% and 100% of the total UAA of the sample). According with Schillizzi and Latacz-Lohmann (2007) the flat rate option provides an amount of rents that is one and a half the auction’s rents with a lower budget and around two times greater with the higher budget level. The results confirm that the auction has the potential to reduce farmers’ information rent when compared with uniform policy instruments. However, the scale of saving depends crucially on auction design hypotheses and farmers' expectation about the maximum acceptable bid cap. The results of this research while attempting to provide a useful empirical exploration of auction theory cannot provide a comprehensive solution in most real world settings. However, it can contribute to feed the debate at EU policy level about the role of tendering instruments in agri-environmental programs to reduce the inefficiency related to the actual agri-environmental payments.