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Green Auctions and Reduction of Information Rents in Payments for Environmental Services: An Experimental Investigation in Sunan County, Northwestern China

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  • Xiaohong Deng
  • Zhongmin Xu

Abstract

Reducing information rents is an important task for government agencies wishing to purchase maximal environmental services with limited budgets. This paper reports on several green auction options for reducing information rents and improving the performance of the “Grain for Green” Payments for environmental services (PES) program implemented in northwestern China. In r experimental auctions and investigations, door-to-door interviews were conducted and bidding envelopes and survey questionnaires were used to determine the offers and the foregone profits of the participants. Three scenarios are analyzed in this paper: a uniform price auction, a discriminatory price auction, and an opportunity-cost system. The results show that compared to the uniform price auction system, the other auction systems can increase the cost-effectiveness of conservation contracting. Competitive bidding can reveal true opportunity costs and can reduce information rents extracted from the government by farmers using private information. The demographics and average bids of these auction types were also analyzed. “Perfect information” in the opportunity-cost offer system has the best performance but is very hard to implement in reality. The results of this research show that the auction is a valuable tool for purchasing conservation contracts in northwestern China, but that in the future, the performance of these auctions should be studied with relaxed model assumptions.

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  • Xiaohong Deng & Zhongmin Xu, 2015. "Green Auctions and Reduction of Information Rents in Payments for Environmental Services: An Experimental Investigation in Sunan County, Northwestern China," PLOS ONE, Public Library of Science, vol. 10(3), pages 1-15, March.
    • Handle: RePEc:plo:pone00:0118978
    DOI: 10.1371/journal.pone.0118978
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    1. Md Sayed Iftekhar & Uwe Latacz-Lohmann, 2017. "How well do conservation auctions perform in achieving landscape-level outcomes? A comparison of auction formats and bid selection criteria," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 61(4), pages 557-575, October.
    2. Valatin, G. & Ovando, P. & Abildtrup, J. & Accastello, C. & Andreucci, M.B. & Chikalanov, A. & El Mokaddem, A. & Garcia, S. & Gonzalez-Sanchis, M. & Gordillo, F. & Kayacan, B. & Little, D. & Lyubenova, 2022. "Approaches to cost-effectiveness of payments for tree planting and forest management for water quality services," Ecosystem Services, Elsevier, vol. 53(C).
    3. Cardona Santos, Elsa & Storm, Hugo & Rasch, Sebastian, 2021. "The cost-effectiveness of conservation auctions in the presence of asset specificity: An agent-based model," Land Use Policy, Elsevier, vol. 102(C).

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