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Conservation procurement auctions with bidirectional externalities

Author

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  • Choi, Pak-Sing
  • Espínola-Arredondo, Ana
  • Muñoz-García, Félix

Abstract

This study analyzes a conservation procurement auction with bidirectional externalities, that is, conservation output can affect the costs of individuals dedicated to market production, and vice versa. The procurer does not observe bidders’ efficiency in conservation or market production. Each market failure alone (asymmetric information or the presence of externalities) deviates optimal output away from the first best. Their coexistence, however, rather than producing larger output inefficiencies, can move optimal output closer to the first best when negative conservation externalities are minor. In this setting, the benefit from acquiring information about bidders’ types is small. In contrast, when conservation externalities are substantial, the procurer would have strong incentives to acquire information before designing the auction.

Suggested Citation

  • Choi, Pak-Sing & Espínola-Arredondo, Ana & Muñoz-García, Félix, 2018. "Conservation procurement auctions with bidirectional externalities," Journal of Environmental Economics and Management, Elsevier, vol. 92(C), pages 559-579.
  • Handle: RePEc:eee:jeeman:v:92:y:2018:i:c:p:559-579
    DOI: 10.1016/j.jeem.2017.08.009
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    References listed on IDEAS

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    More about this item

    Keywords

    Mechanism design; Bidirectional externalities; Conservation procurement auction;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • Q15 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Land Ownership and Tenure; Land Reform; Land Use; Irrigation; Agriculture and Environment
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects

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