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Competition-Based Environmental Policy: An Analysis of Farmland Preservation in Maryland

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  • Horowitz, John K.
  • Lynch, Lori
  • Stocking, Andrew

Abstract

This paper studies bidder behavior in an innovative program in which farmers compete to sell their development rights to the State. We derive a reduced form bidding model that includes both private value and common value components. This model allows us to estimate the role of bidder competition, the winner’s curse correction, and the underlying distribution of private values. We find that competition reducelers adjust for a possible winner’s curse by increasing their bids by roughly 10 percent over their reservation values. Using the inferred reservation values, we compare this program to an alternative take-it-or-leave-it offer. We find that a take-it-or-leave-it offer of 50 percent of development values would have preserved more farmland for an equivalent budget than the current reverse auction setup.

Suggested Citation

  • Horowitz, John K. & Lynch, Lori & Stocking, Andrew, 2007. "Competition-Based Environmental Policy: An Analysis of Farmland Preservation in Maryland," Working Papers 7340, University of Maryland, Department of Agricultural and Resource Economics.
    • Handle: RePEc:ags:umdrwp:7340
    DOI: 10.22004/ag.econ.7340
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    Cited by:

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    2. Edmund M. Balsdon, 2012. "Property Value Capitalization and Municipal Open Space Referenda," Land Economics, University of Wisconsin Press, vol. 88(2), pages 201-232.
    3. Xiaojie Chen & Jing Wang, 2021. "Quantitatively Determining the Priorities of Regional Ecological Compensation for Cultivated Land in Different Main Functional Areas: A Case Study of Hubei Province, China," Land, MDPI, vol. 10(3), pages 1-21, March.
    4. Banerjee, Simanti & Conte, Marc N., 2017. "Balancing Complexity and Rent-Seeking in Multi-Attribute Conservation Procurement Auctions: Evidence from a Laboratory Experiment," 2018 Allied Social Sciences Association (ASSA) Annual Meeting, January 5-7, 2018, Philadelphia, Pennsylvania 266293, Agricultural and Applied Economics Association.
    5. Chakrabarti, Anwesha & Liu, Pengfei & Swallow, Stephen K., 2018. "Implementing Reverse Auctions with Screening Criteria to Provide Ecosystem Services," 2018 Annual Meeting, August 5-7, Washington, D.C. 274046, Agricultural and Applied Economics Association.
    6. Hellerstein, Daniel & Higgins, Nathaniel, 2010. "The Effective Use of Limited Information: Do Bid Maximums Reduce Procurement Cost in Asymmetric Auctions?," Agricultural and Resource Economics Review, Cambridge University Press, vol. 39(2), pages 288-304, April.
    7. Marc N. Conte & Robert Griffin, 2019. "Private Benefits of Conservation and Procurement Auction Performance," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 73(3), pages 759-790, July.
    8. Rabotyagov, Sergey S. & Lin, Sonja, 2013. "Small forest landowner preferences for working forest conservation contract attributes: A case of Washington State, USA," Journal of Forest Economics, Elsevier, vol. 19(3), pages 307-330.
    9. Cramton, Peter & Hellerstein, Daniel & Higgins, Nathaniel & Iovanna, Richard & López-Vargas, Kristian & Wallander, Steven, 2021. "Improving the cost-effectiveness of the Conservation Reserve Program: A laboratory study," Journal of Environmental Economics and Management, Elsevier, vol. 108(C).
    10. Holzer, Jorge & McConnell, Kenneth, 2023. "Extraction rights allocation with liquidity constraints," Resource and Energy Economics, Elsevier, vol. 71(C).
    11. Holzer, Jorge & DePiper, Geret & Lipton, Douglas, 2017. "Buybacks with costly participation," Journal of Environmental Economics and Management, Elsevier, vol. 85(C), pages 130-145.
    12. Xin Yang & Fan Zhang & Cheng Luo & Anlu Zhang, 2019. "Farmland Ecological Compensation Zoning and Horizontal Fiscal Payment Mechanism in Wuhan Agglomeration, China, From the Perspective of Ecological Footprint," Sustainability, MDPI, vol. 11(8), pages 1-15, April.
    13. Amin, M.G. Mostofa & Karsten, Heather D. & Veith, Tamie L. & Beegle, Douglas B. & Kleinman, Peter J., 2018. "Conservation dairy farming impact on water quality in a karst watershed in northeastern US," Agricultural Systems, Elsevier, vol. 165(C), pages 187-196.
    14. Xin Yang & Anlu Zhang & Fan Zhang, 2019. "Farmers’ Heterogeneous Willingness to Pay for Farmland Non-Market Goods and Services on the Basis of a Mixed Logit Model—A Case Study of Wuhan, China," IJERPH, MDPI, vol. 16(20), pages 1-14, October.
    15. Choi, Pak-Sing & Espínola-Arredondo, Ana & Muñoz-García, Félix, 2018. "Conservation procurement auctions with bidirectional externalities," Journal of Environmental Economics and Management, Elsevier, vol. 92(C), pages 559-579.
    16. Messer, Kent D. & Duke, Joshua M. & Lynch, Lori & Li, Tongzhe, 2017. "When Does Public Information Undermine the Efficiency of Reverse Auctions for the Purchase of Ecosystem Services?," Ecological Economics, Elsevier, vol. 134(C), pages 212-226.

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    More about this item

    Keywords

    Environmental Economics and Policy; Land Economics/Use;

    JEL classification:

    • Q24 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Land
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy

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