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Agri-Environmental Policies design in Europe, USA and Australia: is an auction more cost-effective than a self-selecting contract schedule?

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  • Vergamini, Daniele
  • White, Benedict
  • Viaggi, Davide

Abstract

Various alternative agri-environmental payments approach have been theoretically and empirically designed in Europe (EU), United States (US) and Australia (AUS) with the aim to reduce information rent and increasing the costeffectiveness of the measures. Despite much theoretical analysis on incentive-compatible agri-environmental contracts and wide experimentation of conservation auction in the US and AUS, the main debate on the EU agri-environmental payment still focused on problem of efficiency instead of facing the effectiveness. The main obstacle to designing and implementing more efficient and targeted agri-Environmental Payments (AEP) is limited information on the side of policy makers which can give rise to adverse selection and moral hazard limiting the effectiveness of the schemes and making them expansive to run. Auctions are a category of innovative policy mechanism designed to address adverse selection and to induce farmers to reveal, through competitive bidding, their compliance costs to the government. This paper provide a simulation of an input based menu of contracts model, and of a one-shot procurement auction with data from Farm Accountancy Data Network 2012 (FADN) of Regione Emilia-Romagna (RER), in order to test the relevance of the two methods for designing more cost-effective AE payments. The case study developed for EmiliaRomagna (E-R) demonstrates the heterogeneity in compliance cost. The results of the auction model highlight a significant cost saving compared with the traditional flat rate schemes. The result of the contract model confirm that the recourse of the revelation principle and mechanism design have a potential to reduce information rent and negotiation cost. However, though not directly addressed in this paper, there are several recognized limitation in the literature, which could affect both simulation results and the ability of the methods to contribute in the design of cost-effective AE payments.

Suggested Citation

  • Vergamini, Daniele & White, Benedict & Viaggi, Davide, 2015. "Agri-Environmental Policies design in Europe, USA and Australia: is an auction more cost-effective than a self-selecting contract schedule?," 2015 Fourth Congress, June 11-12, 2015, Ancona, Italy 207357, Italian Association of Agricultural and Applied Economics (AIEAA).
    • Handle: RePEc:ags:aiea15:207357
    DOI: 10.22004/ag.econ.207357
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    References listed on IDEAS

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