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Evaluating conservation auctions with limited information: the policy maker’s predicament

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  • Schilizzi, Steven
  • Latacz-Lohmann, Uwe

Abstract

Buying environmental services from private landholders using tendering mechanisms are usually subject to a budget constraint. Auction theory has mostly focused on target-constrained auctions and is less well developed for this type of auction. This paper examines a theoretical model specifically developed for budget-constrained tenders and assesses its capacity to predict tendering performance under information limitations typical of those found in field applications. But this assessment cannot be done without complementing the model with controlled laboratory experiments. Subject to their external validity, we find that the model is able to make the correct policy recommendation when comparing the tender to an equivalent fixed price scheme, even when the accuracy of its prediction is far from perfect. However, the study suggests that more than a single point estimate of bidders’ costs is needed for this to happen, indicating that it should be worthwhile for policy administrators to invest in some information acquisition before deciding to run a tender.

Suggested Citation

  • Schilizzi, Steven & Latacz-Lohmann, Uwe, 2011. "Evaluating conservation auctions with limited information: the policy maker’s predicament," Working Papers 100884, University of Western Australia, School of Agricultural and Resource Economics.
  • Handle: RePEc:ags:uwauwp:100884
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    File URL: http://purl.umn.edu/100884
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    References listed on IDEAS

    as
    1. Uwe Latacz-Lohmann & Carel P. C. M. Hamsvoort, 1998. "Auctions as a Means of Creating a Market for Public Goods from Agriculture," Journal of Agricultural Economics, Wiley Blackwell, vol. 49(3), pages 334-345.
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    More about this item

    Keywords

    Auctions; procurement; tenders; conservation; economic experiments; model validation; Environmental Economics and Policy; Land Economics/Use; C91; C92; D44; Q24; Q28;

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • 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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