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Auctioning conservation contracts in the presence of externalities

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  • Calel, Raphael

Abstract

Current models of conservation auctions do not permit for the presence of environmental externalities and synergies between bidders. Yet, conservation auctions are usually set up for the very purpose of addressing problems associated with environmental externalities. Clearly, our models do not tell the whole story, and they consequently fail to identify waste and inefficiency in these auctions. Our paper shows how externalities between bidders can be incorporated into our models of conservation auctions, and uses this framework to investigate the cost-efficiency of the uniform-price auction when neighbours can bid jointly. Allowing neighbours to bid jointly allows them to internalise these externalities, but also reduces the competitiveness of the auction. The net effect on cost-efficiency is ambiguous, so we show how simulation can be used to determine in what circumstances joint bidding can be expected to reduce the payments needed to secure a given amount of ecosystem services.

Suggested Citation

  • Calel, Raphael, 2010. "Auctioning conservation contracts in the presence of externalities," LSE Research Online Documents on Economics 37395, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:37395
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    File URL: http://eprints.lse.ac.uk/37395/
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    References listed on IDEAS

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    Cited by:

    1. Jianfu Shen & Frederik Pretorius & Xin Li, 2019. "Does Joint Bidding Reduce Competition? Evidence from Hong Kong Land Auctions," The Journal of Real Estate Finance and Economics, Springer, vol. 58(1), pages 111-132, January.

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    More about this item

    Keywords

    externalities; joint bidding; multi-unit auctions; payments for ecosystem services;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q19 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Other
    • Q57 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Ecological Economics

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