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Auctioning Conservation Contracts and Evaluating the Risk Attitudes of Farmers: Economic Experiments in Japan

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  • Sasaki, Hiroki
  • Fujie, Takeshi
  • Kawasaki, Kentaro
  • Inoue, Norikazu
  • Koito, Kentaro
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    Abstract

    Agri-environmental programs in Japan have generally been promoted through the provision of fixed payments for certain environment-friendly farming and management practices. However, the auctioning of agrienvironmental contracts is a noteworthy alternative for the furtherance of such programs. Conservation auctions are used to enhance the cost-effectiveness of public expenses and have been employed in practice as well as tested in various pilot projects in some countries. This study uses an experimental economics method to factor the risk attitude of participants into a comparison of uniform price (UP) auctions and discriminatory price (DP) auctions. Although some studies have compared fixed payments, UP auctions, and DP auctions, the superiority or inferiority of these strategies depends on the settings of an experiment. Consequently, experiments reflecting the Japanese situation could provide further insight into the advantages of each of these methods, and be used to guide policy design. In addition, the study also examines the effects of participants’ risk attitudes on auction performance. Its principal conclusion is that DP auctions outperform UP auctions; this is in line with the findings of previous studies. This empirical research furthers our understanding of environmental auctions in a first step toward the design of such auctions, but field experiments using real farmers should be conducted in order to help corroborate research conclusions before these are applied to the real world.

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    Bibliographic Info

    Paper provided by European Association of Agricultural Economists in its series 120th Seminar, September 2-4, 2010, Chania, Crete with number 109400.

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    Date of creation: 2010
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    Handle: RePEc:ags:eaa120:109400

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    Related research

    Keywords: conservation auction; experimental economics; risk attitude; environment-friendly farming; Agribusiness; Agricultural and Food Policy; Consumer/Household Economics; Environmental Economics and Policy; Farm Management;

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    1. 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.
    2. Ferraro, Paul J., 2008. "Asymmetric information and contract design for payments for environmental services," Ecological Economics, Elsevier, vol. 65(4), pages 810-821, May.
    3. Timothy N. Cason & Lata Gangadharan, 2003. "A Laboratory Comparison Of Uniform And Discriminative Price Auctions Forreducing Non-Point Source Pollution," Department of Economics - Working Papers Series 882, The University of Melbourne.
    4. Glenn W Harrison & John A List & Charles Towe, 2007. "Naturally Occurring Preferences and Exogenous Laboratory Experiments: A Case Study of Risk Aversion," Econometrica, Econometric Society, vol. 75(2), pages 433-458, 03.
    5. Charles A. Holt & Susan K. Laury, 2002. "Risk Aversion and Incentive Effects," American Economic Review, American Economic Association, vol. 92(5), pages 1644-1655, December.
    6. Jayson L. Lusk & Keith H. Coble, 2005. "Risk Perceptions, Risk Preference, and Acceptance of Risky Food," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 87(2), pages 393-405.
    7. Uwe Latacz-Lohmann & Carel Van der Hamsvoort, 1997. "Auctioning Conservation Contracts: A Theoretical Analysis and an Application," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(2), pages 407-418.
    8. Alvin E. Roth, 2002. "The Economist as Engineer: Game Theory, Experimentation, and Computation as Tools for Design Economics," Econometrica, Econometric Society, vol. 70(4), pages 1341-1378, July.
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