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When Does Public Information Undermine the Efficiency of Reverse Auctions for the Purchase of Ecosystem Services?

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  • Messer, Kent D.
  • Duke, Joshua M.
  • Lynch, Lori
  • Li, Tongzhe

Abstract

Government agencies that conduct reverse auctions related to the Payment of Ecosystem Services (PES) traditionally provide a significant amount of public information about past auction results. This information includes not only the amount of money spent by the government but also can include various information about the accepted bids. This research uses induced-value experiments to evaluate the effect of past auction information on seller (landholder) rent seeking. Results suggest that sellers use this public information and learn how to secure higher rents. However, when sellers are given information only about the buyer's (government agency's) budget, they secure lower rents. Results also suggest that relative budget size affects rents and that budget stochastic variability in the presence of market information diminishes the effect. Thus, in the presence of public information and equivalent total outlays, variable budgets are more likely than stationary budgets to achieve auction fiscal efficiency—the measure of whether the auction achieves the greatest PES benefits given its limited budget. Finally, this research finds that auctions with greater heterogeneity in seller opportunity costs are likely to be less fiscally efficient than when the distribution is more homogeneous.

Suggested Citation

  • Messer, Kent D. & Duke, Joshua M. & Lynch, Lori & Li, Tongzhe, 2017. "When Does Public Information Undermine the Efficiency of Reverse Auctions for the Purchase of Ecosystem Services?," Ecological Economics, Elsevier, vol. 134(C), pages 212-226.
  • Handle: RePEc:eee:ecolec:v:134:y:2017:i:c:p:212-226
    DOI: 10.1016/j.ecolecon.2016.12.004
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    References listed on IDEAS

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    Cited by:

    1. Wallander, Steven & Hellerstein, Daniel M. & Johnsen, Reid, 2018. "Cost Effectiveness of Conservation Auctions Revisited: The Benefits of Information Rents," 2018 Annual Meeting, August 5-7, Washington, D.C. 274457, Agricultural and Applied Economics Association.
    2. repec:kap:enreec:v:73:y:2019:i:3:d:10.1007_s10640-019-00332-z is not listed on IDEAS
    3. repec:kap:enreec:v:73:y:2019:i:3:d:10.1007_s10640-019-00342-x is not listed on IDEAS
    4. Janusch, Nicholas & Palm-Forster, Leah H. & Messer, Kent D. & Ferraro, Paul J., 2017. "Behavioral Insights for Agri-Environmental Program and Policy Design," 2018 Allied Social Sciences Association (ASSA) Annual Meeting, January 5-7, 2018, Philadelphia, Pennsylvania 266299, Agricultural and Applied Economics Association.

    More about this item

    Keywords

    Reverse auctions; Purchase of ecosystem services; Conservation auctions; Auction efficiency; Land preservation;

    JEL classification:

    • C9 - Mathematical and Quantitative Methods - - Design of Experiments
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
    • Q24 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Land
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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