Generating Revenues from WTP for Ecosystem Restoration: An Auction Experiment on Public Goods

Research on public good auctions is intended to initiate development on new approaches to finance public goods, beyond government and philanthropic efforts. The researchers evaluate the potential to identify economic value for a subset of ecosystem services and markets that have the potential to provide for them. Empirical analysis focuses on public valuation for three specific types of ecosystem activities (bird habitat, sea grass restoration and shellfish restoration) in coastal Virginia. Data was collected using a field experiment employing an experimental auction approach with mechanisms to reduce free riding often seen in the experimental economics literature. These incentive mechanisms are applied to individual restoration activities and willingness to pay estimates are compared to a baseline choice experiment that employs an incentive compatible, majority vote mechanism and actual (not hypothetical) money payments. A conditional logit model, rooted in McFadden’s choice theory, is used to examine the trade-offs between ecosystem restoration activities to estimate willingness to pay, while interval regressions are applied to individualized price auctions. Linear and nonlinear models are estimated to check for validity and sensitivity to scope.