Communication, competition and social gift exchange in an auction for public good provision
Reverse auctions are an established policy instrument for allocating conservation contracts. While the auction mechanism has been the subject of a number of studies, less attention has been paid to the post-bidding contract phase. As contracts involving natural resource management are usually incomplete, trust becomes crucial for the effectiveness of the programme. We test the effect of communication between auctioneer and bidders on bidding behaviour and contract fulfilment using experimental economics. We combine a repeated reverse auction with an effort-level game and use a bilateral chatting tool as treatment variable. Without communication, auctioneers tended to select the lowest-priced bidders, who invested substantially less than the socially optimal level of effort when fulfilling their contract to provide the public good. Relational contracting proved important, with effort levels and profits tending to be higher when auctioneers and bidders entered into consecutive contract relationships. In the communication treatment there was no evidence of price competition, as auctioneers were more likely to accept high-priced bids. However, an overall higher price level did not lead to efficiency losses, since contractors realised higher effort levels in return, establishing a ‘social gift exchange’. Our results demonstrate the importance of trust-based relationships between the auctioneering institution and landholders.
If 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.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
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.:
- 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.
- Andrew Reeson & John Tisdell, 2010. "The Market Instinct: The Demise of Social Preferences for Self-Interest," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 47(3), pages 439-453, November.
- Martin Brown & Armin Falk & Ernst Fehr, 2012.
"Competition And Relational Contracts: The Role Of Unemployment As A Disciplinary Device,"
Journal of the European Economic Association,
European Economic Association, vol. 10(4), pages 887-907, 08.
- Martin Brown & Armin Falk & Ernst Fehr, 2008. "Competition and Relational Contracts: The Role of Unemployment as a Disciplinary Device," Working Papers 2008-07, Swiss National Bank.
- Brown, Martin & Falk, Armin & Fehr, Ernst, 2008. "Competition and Relational Contracts: The Role of Unemployment as a Disciplinary Device," IZA Discussion Papers 3345, Institute for the Study of Labor (IZA).
- Brown, Martin & Falk, Armin & Fehr, Ernst, 2011. "Competition and Relational Contracts: The Role of Unemployment as a Disciplinary Device," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 359, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
- Ernst Fehr & Klaus M. Schmidt, 1999. "A Theory of Fairness, Competition, and Cooperation," The Quarterly Journal of Economics, Oxford University Press, vol. 114(3), pages 817-868.
- Fehr, Ernst & Schmidt, Klaus M., . "A theory of fairness, competition, and cooperation," Chapters in Economics, University of Munich, Department of Economics.
- Ernst Fehr & Klaus M. Schmidt, "undated". "A Theory of Fairness, Competition and Cooperation," IEW - Working Papers 004, Institute for Empirical Research in Economics - University of Zurich.
- Fehr, Ernst & Schmidt, Klaus M., 1999. "A theory of fairness, competition, and cooperation," Munich Reprints in Economics 20650, University of Munich, Department of Economics.
- Fehr, Ernst & Schmidt, Klaus M., 1998. "A Theory of Fairness, Competition and Cooperation," CEPR Discussion Papers 1812, C.E.P.R. Discussion Papers.
- Reeson, Andrew F. & Rodriguez, Luis C. & Whitten, Stuart M. & Williams, Kristen & Nolles, Karel & Windle, Jill & Rolfe, John, 2011. "Adapting auctions for the provision of ecosystem services at the landscape scale," Ecological Economics, Elsevier, vol. 70(9), pages 1621-1627, July.
- Ernst Fehr & Simon Gachter & Georg Kirchsteiger, 1997. "Reciprocity as a Contract Enforcement Device: Experimental Evidence," Econometrica, Econometric Society, vol. 65(4), pages 833-860, July.
- Georg Kirchsteiger & Ernst Fehr & Simon Gächter, 1997. "Reciprocity as a contract enforcement device: experimental evidence," ULB Institutional Repository 2013/5911, ULB -- Universite Libre de Bruxelles.
- Peter Bogetoft & Henrik Ballebye Olesen, 2002. "Ten rules of thumb in contract design: lessons from Danish agriculture," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 29(2), pages 185-204, June.
- 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 10436, Australian Agricultural and Resource Economics Society.
- Martin Brown & Armin Falk & Ernst Fehr, 2004. "Relational Contracts and the Nature of Market Interactions," Econometrica, Econometric Society, vol. 72(3), pages 747-780, 05.
- Brown, Martin & Falk, Armin & Fehr, Ernst, 2003. "Relational Contracts and the Nature of Market Interactions," IZA Discussion Papers 897, Institute for the Study of Labor (IZA).
- Pretty, Jules & Ward, Hugh, 2001. "Social Capital and the Environment," World Development, Elsevier, vol. 29(2), pages 209-227, February.
- Daniel Balliet, 2010. "Communication and Cooperation in Social Dilemmas: A Meta-Analytic Review," Journal of Conflict Resolution, Peace Science Society (International), vol. 54(1), pages 39-57, February.
- Gachter, Simon & Falk, Armin, 2002. " Reputation and Reciprocity: Consequences for the Labour Relation," Scandinavian Journal of Economics, Wiley Blackwell, vol. 104(1), pages 1-26.
- Simon Gaechter & Armin Falk, "undated". "Reputation and Reciprocity: Consequences for the Labour Relation," IEW - Working Papers 019, Institute for Empirical Research in Economics - University of Zurich.
- Ernst Fehr & Martin Brown & Christian Zehnder, 2009. "On Reputation: A Microfoundation of Contract Enforcement and Price Rigidity," Economic Journal, Royal Economic Society, vol. 119(536), pages 333-353, 03.
- Fehr, Ernst & Brown, Martin & Zehnder, Christian, 2008. "On Reputation: A Microfoundation of Contract Enforcement and Price Rigidity," IZA Discussion Papers 3655, Institute for the Study of Labor (IZA).
- Ernst Fehr & Martin Brown & Christian Zehnder, 2008. "On Reputation: A Microfoundation of Contract Enforcement and Price Rigidity," Working Papers 2008-17, Swiss National Bank.
- Ernst Fehr & Martin Brown & Christian Zehnder, 2008. "On reputation: A microfoundation of contract enforcement and price rigidity," IEW - Working Papers 384, Institute for Empirical Research in Economics - University of Zurich.
- Ostrom, Elinor, 2010. "Revising theory in light of experimental findings," Journal of Economic Behavior & Organization, Elsevier, vol. 73(1), pages 68-72, January.
- Isaac, R Mark & Walker, James M, 1988. "Communication and Free-Riding Behavior: The Voluntary Contribution Mechanism," Economic Inquiry, Western Economic Association International, vol. 26(4), pages 585-608, October.
- Cason, Timothy N. & Khan, Feisal U., 1999. "A laboratory study of voluntary public goods provision with imperfect monitoring and communication," Journal of Development Economics, Elsevier, vol. 58(2), pages 533-552, April.
- Ferraro, Paul J., 2008. "Asymmetric information and contract design for payments for environmental services," Ecological Economics, Elsevier, vol. 65(4), pages 810-821, May.
- Juan Cardenas, 2011. "Social Norms and Behavior in the Local Commons as Seen Through the Lens of Field Experiments," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 48(3), pages 451-485, March.
- Ben-Ner, Avner & Putterman, Louis, 2009. "Trust, communication and contracts: An experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 70(1-2), pages 106-121, May.
- Avner Ben-Ner & Louis Putterman, "undated". "Trust, Communication and Contracts: An Experiment," Working Papers 0206, Human Resources and Labor Studies, University of Minnesota (Twin Cities Campus).
- Anderies, John M. & Janssen, Marco A. & Bousquet, François & Cardenas, Juan-Camilo & Castillo, Daniel & Lopez, Maria-Claudio & Tobias, Robert & Vollan, Björn & Wutich, Amber, 2011. "The challenge of understanding decisions in experimental studies of common pool resource governance," Ecological Economics, Elsevier, vol. 70(9), pages 1571-1579, July.
- 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, vol. 70(4), pages 651-658, February.
- Atakelty Hailu & Steven Schilizzi, 2004. "Are Auctions More Efficient Than Fixed Price Schemes When Bidders Learn?," Australian Journal of Management, Australian School of Business, vol. 29(2), pages 147-168, December.
- 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, vol. 70(4), pages 641-650, February.
- Douglas D. Davis & Charles A. Holt, 1992. "Introduction to Experimental Economics," Introductory Chapters, in: Experimental Economics Princeton University Press.
- Timothy N. Cason & Lata Gangadharan, 2004. "Auction Design for Voluntary Conservation Programs," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 86(5), pages 1211-1217.
- Berg Joyce & Dickhaut John & McCabe Kevin, 1995. "Trust, Reciprocity, and Social History," Games and Economic Behavior, Elsevier, vol. 10(1), pages 122-142, July.
- Walker, James M. & Williams, Arlington W., 1988. "Market behavior in bid, offer, and double auctions : A Reexmination," Journal of Economic Behavior & Organization, Elsevier, vol. 9(3), pages 301-314, April. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:eee:ecolec:v:93:y:2013:i:c:p:11-19. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.