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Additionality and Asymmetric Information in Environmental Markets: Evidence from Conservation Auctions

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  • Karl M. Aspelund
  • Anna Russo

Abstract

Mechanisms that aim to reduce environmental degradation at low cost can be undermined when participants' conservation actions are not marginal to the incentive—or "additional"—as the lowest-cost participants may not be the highest social value. We investigate this challenge in the Conservation Reserve Program's auction mechanism for ecosystem services, linking bids to satellite-derived land use. Three-quarters of marginal auction winners are not additional. The heterogeneity in counterfactual land use introduces adverse selection. We develop a model of bidding and additionality to quantify welfare implications. Alternative auctions increase efficiency by using scoring rules that incorporate expected land use impacts.

Suggested Citation

  • Karl M. Aspelund & Anna Russo, 2026. "Additionality and Asymmetric Information in Environmental Markets: Evidence from Conservation Auctions," American Economic Review, American Economic Association, vol. 116(8), pages 2765-2805, August.
    • Handle: RePEc:aea:aecrev:v:116:y:2026:i:8:p:2765-2805
    DOI: 10.1257/aer.20250295
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    More about this item

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • Q24 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Land
    • Q57 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Ecological Economics
    • R14 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Land Use Patterns

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