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Auctioning conservation contracts in thepresence of externalities

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  • Raphael Calel

Abstract

Current models of conservation auctions do not permit for the presence of environmental externalities and synergies between bidders. Yet, conservation auctions are usually set up for the very purpose of addressing problems associated with environmental externalities. Clearly, our models do not tell the whole story, and they consequently fail to identify waste and inefficiency in these auctions. This paper shows how externalities between bidders can be incorporated into our models of conservation auctions, and uses this framework to investigate the cost-efficiency of the uniform-price auction when neighbours can bid jointly. Allowing neighbours to bid jointly allows them to internalise these externalities, but also reduces the competitiveness of the auction. The net effect on cost-effciency is ambiguous, so we show how simulation can be used to determine in what circumstances joint bidding can be expected to reduce the payments needed to secure a given amount of ecosystem services.

Suggested Citation

  • Raphael Calel, 2010. "Auctioning conservation contracts in thepresence of externalities," GRI Working Papers 22, Grantham Research Institute on Climate Change and the Environment.
  • Handle: RePEc:lsg:lsgwps:wp22
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    References listed on IDEAS

    as
    1. Chan, Chris & Laplagne, Patrick & Appels, David, 2003. "The Role of Auctions in Allocating Public Resources," Staff Research Papers 31916, Productivity Commission.
    2. Rosenthal, Robert W. & Wang, Ruqu, 1996. "Simultaneous Auctions with Synergies and Common Values," Games and Economic Behavior, Elsevier, vol. 17(1), pages 32-55, November.
    3. Bresky, Michal, 2013. "Revenue and efficiency in multi-unit uniform-price auctions," Games and Economic Behavior, Elsevier, vol. 82(C), pages 205-217.
    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. Krishna, Vijay, 2009. "Auction Theory," Elsevier Monographs, Elsevier, edition 2, number 9780123745071.
    6. Sandra Saïd & Sophie Thoyer, 2007. "Agri-environmental auctions with synergies," Working Papers 07-07, LAMETA, Universtiy of Montpellier, revised Sep 2007.
    7. Philip J. Reny, 1999. "On the Existence of Pure and Mixed Strategy Nash Equilibria in Discontinuous Games," Econometrica, Econometric Society, vol. 67(5), pages 1029-1056, September.
    8. Krishna, Vijay & Rosenthal, Robert W., 1996. "Simultaneous Auctions with Synergies," Games and Economic Behavior, Elsevier, vol. 17(1), pages 1-31, November.
    9. Indranil Chakraborty, 2006. "Characterization of equilibrium in pay-as-bid auctions for multiple units," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 29(1), pages 197-211, September.
    10. Banerjee, Simanti & Shortle, James S. & Kwasnica, Anthony M., 2009. "The Agglomeration Vickrey Auction for the promotion of spatially contiguous habitat management: Theoretical foundations and numerical illustrations," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 49337, Agricultural and Applied Economics Association.
    11. Noussair, Charles, 1995. "Equilibria in a Multi-object Uniform Price Sealed Bid Auction with Multi-unit Demands," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 5(2), pages 337-351, March.
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    More about this item

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q19 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Other
    • Q57 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Ecological Economics

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