Lock-in effects in competitive bidding schemes for payments for ecosystem services: Revisiting the fundamental transformation
AbstractCompetitive bidding is considered to be a cost-effective allocation mechanism for payments for ecosystem services. This article shows that competition is not a necessary condition for sustaining cost-effectiveness in the long run. In a repeated conservation auction, learning, specific investments and the creation of social capital bias the chances of winning a follow-up contract in favour of former auction winners. Applying the concept of fundamental transformation (Williamson 1985), we argue that this asymmetry weakens competition and leads to lock-in effects between the auctioning agency and a stable pool of sellers with uncertain consequences for cost-effectiveness. We compare data from two laboratory experiments on auction-based conservation programmes and show under which conditions lock-in effects are likely to occur in a controlled environment. Our findings demonstrate lock-in effects do not erode the effectiveness of an auction but change the rules of the game towards more favourable conditions for the provision of the targeted good or service. In view of the empirical evidence for a superior performance of long-term contract relationships compared to low-cost short-term contracting, we discuss directions for follow-up empirical work. --
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University of Goettingen, Department of Economics in its series Center for European, Governance and Economic Development Research Discussion Papers with number 158.
Date of creation: 2013
Date of revision:
trust; social capital; asset specificity; cost-effectiveness; conservation auctions; payments for ecosystem services;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-07-05 (All new papers)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Vogt, Nora & Reeson, Andrew F. & Bizer, Kilian, 2013. "Communication, competition and social gift exchange in an auction for public good provision," Ecological Economics, Elsevier, Elsevier, vol. 93(C), pages 11-19.
- Wunder, Sven & Engel, Stefanie & Pagiola, Stefano, 2008. "Taking stock: A comparative analysis of payments for environmental services programs in developed and developing countries," Ecological Economics, Elsevier, Elsevier, vol. 65(4), pages 834-852, May.
- Mettepenningen, E. & Beckmann, V. & Eggers, J., 2011. "Public transaction costs of agri-environmental schemes and their determinants--Analysing stakeholders' involvement and perceptions," Ecological Economics, Elsevier, Elsevier, vol. 70(4), pages 641-650, February.
- Pretty, Jules & Ward, Hugh, 2001. "Social Capital and the Environment," World Development, Elsevier, Elsevier, vol. 29(2), pages 209-227, February.
- 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, Agricultural and Applied Economics Association, vol. 79(2), pages 407-418.
- Ferraro, Paul J., 2008. "Asymmetric information and contract design for payments for environmental services," Ecological Economics, Elsevier, Elsevier, vol. 65(4), pages 810-821, May.
- Nikoleta Jones, 2010. "Investigating the influence of social costs and benefits of environmental policies through social capital theory," Policy Sciences, Springer, Springer, vol. 43(3), pages 229-244, September.
- Milgrom,Paul, 2004.
"Putting Auction Theory to Work,"
Cambridge Books, Cambridge University Press,
Cambridge University Press, number 9780521536721.
- Per Kristian RÃ¸rstad & Arild Vatn & Valborg Kvakkestad, 2007. "Why do transaction costs of agricultural policies vary?," Agricultural Economics, International Association of Agricultural Economists, vol. 36(1), pages 1-11, 01.
- Schilizzi, Steven & Latacz-Lohmann, Uwe, 2007. "Assessing the performance of conservation auctions: an experimental study," 2007 Conference (51st), February 13-16, 2007, Queenstown, New Zealand, Australian Agricultural and Resource Economics Society 10436, Australian Agricultural and Resource Economics Society.
- Engel, Stefanie & Pagiola, Stefano & Wunder, Sven, 2008. "Designing payments for environmental services in theory and practice: An overview of the issues," Ecological Economics, Elsevier, Elsevier, vol. 65(4), pages 663-674, May.
- Michael A. Arnold & Joshua M. Duke & Kent D. Messer, 2013. "Adverse Selection in Reverse Auctions for Ecosystem Services," Land Economics, University of Wisconsin Press, vol. 89(3), pages 387-412.
- Williamson, Oliver E, 1983. "Credible Commitments: Using Hostages to Support Exchange," American Economic Review, American Economic Association, American Economic Association, vol. 73(4), pages 519-40, September.
- McCann, Laura & Colby, Bonnie & Easter, K. William & Kasterine, Alexander & Kuperan, K.V., 2005. "Transaction cost measurement for evaluating environmental policies," Ecological Economics, Elsevier, Elsevier, vol. 52(4), pages 527-542, March.
- Maskin, Eric, 2002.
"On indescribable contingencies and incomplete contracts,"
European Economic Review, Elsevier,
Elsevier, vol. 46(4-5), pages 725-733, May.
- Eric Maskin, 2001. "On Indescribable Contingencies and Incomplete Contracts," Economics Working Papers, Institute for Advanced Study, School of Social Science 0008, Institute for Advanced Study, School of Social Science.
- Reeson, Andrew F. & Tisdell, John G. & McAllister, Ryan R.J., 2011. "Trust, reputation and relationships in grazing rights markets: An experimental economic study," Ecological Economics, Elsevier, Elsevier, vol. 70(4), pages 651-658, February.
- Steven Schilizzi & Uwe Latacz-Lohmann, 2007. "Assessing the Performance of Conservation Auctions: An Experimental Study," Land Economics, University of Wisconsin Press, vol. 83(4), pages 497-515.
- Timothy N. Cason & Lata Gangadharan, 2004. "Auction Design for Voluntary Conservation Programs," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, Agricultural and Applied Economics Association, vol. 86(5), pages 1211-1217.
- Ruben N. Lubowski & Michael J. Roberts, 2005. "How Cost-Effective Are Land Retirement Auctions? Estimating the Difference between Payments and Willingness to Accept in the Conservation Reserve Program," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, Agricultural and Applied Economics Association, vol. 87(5), pages 1239-1247.
- Sullivan, Patrick & Hellerstein, Daniel & Hansen, LeRoy T. & Johansson, Robert C. & Koenig, Steven R. & Lubowski, Ruben N. & McBride, William D. & McGranahan, David A. & Roberts, Michael J. & Vogel, S, 2004. "The Conservation Reserve Program: Economic Implications for Rural America," Agricultural Economics Reports, United States Department of Agriculture, Economic Research Service 33987, United States Department of Agriculture, Economic Research Service.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics).
If references are entirely missing, you can add them using this form.