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Auctions Without Competition: The Case of Timber Sales in the Murmansk Region

  • B. Jacobsen
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    This report analyzes the timber-auction system introduced in Russia in 1997, focusing on the Murmansk region. The Russian auction system is strongly inspired by the North American practice but many preconditions for the system to function efficiently are absent. The main obstacles are the shortage of auction participants and the resulting possibility of collusion. Thus, the "one bidder-auctions" are common. This drives the Federal Forest Service (FFS) to lease timber at a low reservation price. By doing this, the FFS ensures social efficiency in the sense that a socially beneficial trade is carried out. However, this achievement is made at the cost of a modest rent appropriation. In Murmansk, we probably witness a true disinterest in timber resources, which caused by unpredictable economic and social conditions. Short-term contracts dominate forestry activities and there are few incentives for developing sustainable forest use. Auction theory asserts that collusion is more likely in oral auctions than in sealed-bid auctions. Since the latter auction form is most common, the FFS does seem to apply the formal means of control that they posses. This has made the market more transparent. However, with only a few market participants auctions may easily "collapse" into informal bilateral bargaining between the seller and the most likely buyer.

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    File URL: http://www.iiasa.ac.at/Publications/Documents/IR-99-072.pdf
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    File URL: http://www.iiasa.ac.at/Publications/Documents/IR-99-072.ps
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    Paper provided by International Institute for Applied Systems Analysis in its series Working Papers with number ir99072.

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    Date of creation: Dec 1999
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    Handle: RePEc:wop:iasawp:ir99072
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    1. Brannman, Lance Eric, 1996. "Potential Competition and Possible Collusion in Forest Service Timber Auctions," Economic Inquiry, Western Economic Association International, vol. 34(4), pages 730-45, October.
    2. M. Pappila, 1999. "The Russian Forest Sector and Legislation in Transition," Working Papers ir99058, International Institute for Applied Systems Analysis.
    3. Marshall, R.C. & Richard J.F., 1995. "Bider Collusion at Forest Service Timber Sales," Papers 7-95-3, Pennsylvania State - Department of Economics.
    4. Klemperer, P., 1999. "Auction Theory: a Guide to the Literature," Economics Papers 1999-w12, Economics Group, Nuffield College, University of Oxford.
    5. McAfee, R Preston & McMillan, John, 1987. "Auctions and Bidding," Journal of Economic Literature, American Economic Association, vol. 25(2), pages 699-738, June.
    6. L. Ivanova & V. Nygaard, 1999. "Institutions and the Emergence of Markets - Transition in the Murmansk Forest Sector," Working Papers ir99071, International Institute for Applied Systems Analysis.
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