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Designing Market Based Instruments: Beyond Round One of the Australian MBI Pilot Program


  • Lansdell, Nicola
  • Stoneham, Gary


Most markets have evolved as buyers and sellers constantly search for ways to create value, however this has not occurred naturally in all areas of the economy - markets are missing for some goods, including the environment. In such cases, transaction costs linked to property rights, asymmetric and hidden information and packaging problems have often prevented otherwise valuable deals from being negotiated in relation to the environment. However new capabilities and a better knowledge and understanding of the problems at hand now mean that where the objective is clear, and the knowledge, skills and capability exist to understand, model and measure the relevant characteristics of the problem transaction costs are low enough that economists can, in certain cases, design market based instruments that match demand with supply. In general the findings from the National MBI Pilot Program indicate that cap-and-trade systems, auctions and offsets systems can be effective tools to achieve natural resource management. The type of mechanism that is appropriate in a particular circumstance will depend on the transaction costs involved, which are strongly influenced by the features of the problem at hand. Mechanisms therefore require careful design to ensure they are tailored to each particular case.

Suggested Citation

  • Lansdell, Nicola & Stoneham, Gary, 2006. "Designing Market Based Instruments: Beyond Round One of the Australian MBI Pilot Program," 2006 Annual Meeting, August 12-18, 2006, Queensland, Australia 25743, International Association of Agricultural Economists.
  • Handle: RePEc:ags:iaae06:25743

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    References listed on IDEAS

    1. S.J. Rassenti & V.L. Smith & R.L. Bulfin, 1982. "A Combinatorial Auction Mechanism for Airport Time Slot Allocation," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 402-417, Autumn.
    2. Ausubel Lawrence M & Milgrom Paul R, 2002. "Ascending Auctions with Package Bidding," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 1(1), pages 1-44, August.
    3. Brett Bryan & Jeffery Connor et al, 2005., 2005. "Catchment Care - Developing an Auction Process for Biodiversity and Water Quality Gains. Volume 1 - Report," Natural Resource Management Economics 05_004, Policy and Economic Research Unit, CSIRO Land and Water, Adelaide, Australia.
    4. Uwe Latacz-Lohmann & Carel Van der Hamsvoort, 1997. "Auctioning Conservation Contracts: A Theoretical Analysis and an Application," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(2), pages 407-418.
    5. Grether, David M & Isaac, R Mark & Plott, Charles R, 1981. "The Allocation of Landing Rights by Unanimity among Competitors," American Economic Review, American Economic Association, vol. 71(2), pages 166-171, May.
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