Auctioning Payment Entitlements
Payment entitlements is a new commodity that arises from the new European common agricultural policy. The agricultural subsidies are decoupled from the actual production and replaced by the so-called payment entitlements. A payment entitlement has a farm specific value and may be freely traded. This paper discusses the complexity of this new market and suggests an auction that simplifies the complexity. The suggested auction allows a buyer to simultaneously bid on all payment entitlements. The prices are found by a tatonnement that monotonically approximates the equilibrium prices for the different types of payment entitlements for sale. The auction enhances the competition and efficiency of the market, which is essential for the individual members of the European Union in order for them to receive their entitled subsidies.
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