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Auctioning conservation contracts in thepresence of externalities

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  • Raphael Calel
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    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. This 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-effciency 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.

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    Bibliographic Info

    Paper provided by Grantham Research Institute on Climate Change and the Environment in its series Grantham Research Institute on Climate Change and the Environment Working Papers with number 22.

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    Date of creation: Aug 2010
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    Handle: RePEc:lsg:lsgwps:wp22

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    1. Sandra Saïd & Sophie Thoyer, 2007. "Agri-environmental auctions with synergies," Working Papers 07-07, LAMETA, Universtiy of Montpellier, revised Sep 2007.
    2. Robert W. Rosenthal & Ruqu Wang, 1995. "Simultaneous Auctions with Synergies and Common Values," Papers 0060, Boston University - Industry Studies Programme.
    3. Vijay Krishna & Robert Rosenthal, 1995. "Simultaneous Auctions with Synergies," Game Theory and Information 9503004, EconWPA.
    4. Noussair, Charles, 1995. "Equilibria in a Multi-object Uniform Price Sealed Bid Auction with Multi-unit Demands," Economic Theory, Springer, vol. 5(2), pages 337-51, March.
    5. 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.
    6. Chris Chan & Patrick Laplagne & David Appels, 2003. "The Role of Auctions in Allocating Public Resources," Microeconomics 0304007, EconWPA.
    7. Philip J. Reny, 1999. "On the Existence of Pure and Mixed Strategy Nash Equilibria in Discontinuous Games," Econometrica, Econometric Society, vol. 67(5), pages 1029-1056, September.
    8. Indranil Chakraborty, 2006. "Characterization of equilibrium in pay-as-bid auctions for multiple units," Economic Theory, Springer, vol. 29(1), pages 197-211, September.
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