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Evaluating conservation auctions with limited information: the policy maker’s predicament

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  • Schilizzi, Steven
  • Latacz-Lohmann, Uwe
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    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 less well developed for this type of auction. This paper examines a theoretical model specifically developed for budget-constrained tenders and assesses its capacity to predict tendering performance under information limitations typical of those found in field applications. But this assessment cannot be done without complementing the model with controlled laboratory experiments. Subject to their external validity, we find that the model is able to make the correct policy recommendation when comparing the tender to an equivalent fixed price scheme, even when the accuracy of its prediction is far from perfect. However, the study suggests that more than a single point estimate of bidders’ costs is needed for this to happen, indicating that it should be worthwhile for policy administrators to invest in some information acquisition before deciding to run a tender.

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    Bibliographic Info

    Paper provided by University of Western Australia, School of Agricultural and Resource Economics in its series Working Papers with number 100884.

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    Date of creation: 18 Feb 2011
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    Handle: RePEc:ags:uwauwp:100884

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    Keywords: Auctions; procurement; tenders; conservation; economic experiments; model validation; Environmental Economics and Policy; Land Economics/Use; C91; C92; D44; Q24; Q28;

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    1. 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, Wiley Blackwell, vol. 49(3), pages 334-345.
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