Bidding behavior in environmental contract auctions with incomplete monitoring
AbstractIt is well known from the compliance literature that whenever it costly to monitor agents' compliance to contract terms, compliance is likely to be incomplete. This paper goes one step further by examining the implications of incomplete monitoring on agent's sales offers in auctions for environmental contracts. From a monitoring perspective we show allocation contracts to least cost also produces another gain – that less resources need to be spend on monitoring and enforcement. To get full use of this insight one needs to have auction procedures that provide incentives for truthful revelation of agents' private alternate incomes. Our second result is that the incentives for truthful revelation is lost when monitoring is incomplete unless the expected value of compliance exceeds the expected value of noncompliance. We demonstrate this result theoretically and through an economic experiment using an induced value reverse multi unit auction.
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Bibliographic InfoPaper provided by European Association of Agricultural Economists in its series 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland with number 115985.
Date of creation: 02 Sep 2011
Date of revision:
environmental contract auctions; monitoring and compliance; truthful revelation; Environmental Economics and Policy; Resource /Energy Economics and Policy;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-10-15 (All new papers)
- NEP-CTA-2011-10-15 (Contract Theory & Applications)
- NEP-ENV-2011-10-15 (Environmental Economics)
- NEP-GTH-2011-10-15 (Game Theory)
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