An empirical examination of repeated auctions for biodiversity conservation contracts

The European Union’s Council Regulation on support for rural development by the European Agricultural Fund for Rural Development has introduced auctioning as a new instrument for granting agri-environmental payments and awarding conservation contracts for the recent multi-annual budgetary plan. This paper therefore deals with the conception and results of two case study auctions for conservation contracts. Results of two field experiments show much differentiated bid prices in the model-region and budgetary cost-effectiveness gains of up to 21% in the first auction and up to 36% in the repeated auction. Besides these promising results, some critical aspects as well as lessons to be learned will also be discussed in this paper to improve the design and performance of upcoming conservation auctions.agri-environmental policy, discriminatory-price auction, multi-unit auction, ecological services, plant biodiversity, experimental economics

Private ex-ante transaction costs for repeated biodiversity conservation auctions: a case study

The European Union’s Council Regulation (EC) No 1698/2005 on support for rural development by the European Agricultural Fund for Rural Development has introduced promising changes in rewarding farmers by the implementation of conservation auctions and granting farmers’ transaction costs. The paper therefore deals with the evaluation of private transaction costs within a case study using repeated auctions to reward plant biodiversity. Based on a review of the current literature the paper develops a specific definition of transaction costs as well as a methodology to measure and calculate the farmers’ private transaction costs. The case study enfolds two field experiment auctions and two corresponding surveys. The transaction costs are measured by the use of written questionnaires and will be discussed both as a first reference value of farmers’ transaction costs as well as compared to the individual payments within the case study auctions in order to investigate the real-life performance of this specific application of repeated conservation auctions in biodiversity protection efforts.agri-environmental policy, biodiversity conservation auctions, transaction costs, ecological services, plant biodiversity, experimental economics, EAFRD-Regulation

The transferability and performance of payment-by-results biodiversity conservation procurement auctions: empirical evidence from northernmost Germany

Managed grasslands contribute in a number of ways to the biodiversity of European agricultural landscapes and provide a wide range of ecosystem services that are also of socio-economic value. Against the background of a rapid biodiversity loss in agricultural landscapes, increasing attention is being paid to farming practices that enhance ecosystem services. Therefore developing cost-effective conservation payment schemes is the main challenge facing present European agri-environmental policy. This paper deals with the transferability of a payment scheme that combines a payment-by-results approach with the use of discriminatory-price conservation procurement auctions in order to improve the cost-effectiveness of conservation schemes for grassland plant biodiversity. Hence the design, implementation and results of the adapted case-study payment scheme in the county Steinburg in the northernmost federal state of Germany (Schleswig-Holstein) will be focussed. Results concerning the ecological-effectiveness of the payment-by-results approach as well bid-prices and potential cost-effectiveness gains by the use of conservation procurement auctions point out that it was possible to transfer the payment scheme successfully to another region, whereby the adapted case-study even outperforms the original case-study.agri-environmental policy, discriminatory-price auction, ecological services, experimental economics, multi-unit auction, payment-by-results, plant biodiversity, rural development.

where are we and where should we go from here?

Managed grasslands contribute in a number of ways to the biodiversity of European agricultural landscapes and provide a wide range of ecosystem services that are also of socio-economic value. Against the background of a rapid biodiversity loss in agricultural landscapes, increasing attention is being paid to farming practices that enhance ecosystem services. Therefore developing cost-effective conservation payment schemes is the main challenge facing present European agri-environmental policy. However, there is still a serve shortage of knowledge and practical experiences concerning the use of conservation procurement auctions in Europe. The aim of the paper, therefore, is twofold. Firstly, the current state of using markets for biodiversity by means of payment-by-results biodiversity conservation procurement auctions will be discussed by reviewing two field experiments with farmers in two case- study areas in Germany. Secondly, further need for research will be discussed briefly. Keeping in mind the methodological difficulties of evaluating field experiments, this empirical work indicates a potential for budgetary cost advantages of auctioning compared to traditional fixed flat-rate payment schemes of up to 52 per cent. These findings along with the relatively high number of successful participants indicate that this specific approach will most probably be an improvement over current agri-environmental programmes in the EU. This is mainly because low-cost producers gain smaller information rents and conservation agencies will be able to close contracts with (some) high-cost farmers due to cost-effectiveness gains provided by low-cost landowners. Even though the case-studies have yielded promising results, some critical aspects as well as lessons to be learnt will be discussed to improve the design and performance of upcoming biodiversity conservation procurement auctions based on performance payments. Current need for research addressed in the paper takes deals with the design of a specific agri-environment index for plant biodiversity

Models for Budget Constrained Auctions: An Application to Sponsored Search & Other Auctions

The last decade has seen the emergence of auction mechanisms for pricing and allocating goods on the Internet. A successful application area for auctions has been sponsored search. Search firms like Google, Bing and Yahoo have shown stellar revenue growths due to their ability to run large number of auctions in a computationally efficient manner. The online advertisement market in the U.S. is estimated to be around $41 billion in 2010 and expected to grow to$50 billion by 2011 (http://www.marketingcharts.com/interactive/us-online-advertising-market-to-reach-50b-in-2011-3128/). The paid search component is estimated to account for nearly 50% of online advertising spend. This dissertation considers two problems in the sponsored search auction domain. In sponsored search, the search operator solves a multi-unit allocation and pricing problem with the specified bidder values and budgets. The advertisers, on the other hand, regularly solve a bid determination problem for the different keywords, given their budget and other business constraints. We develop a model for the auctioneer that allows the bidders to place differing bids for different advertisement slots for any keyword combination. Despite the increased complexity, our model is solved in polynomial time. Next, we develop a column-generation procedure for large advertisers to bid optimally in the sponsored search auctions. Our focus is on solving large-scale versions of the problem. Multi-unit auctions have also found a number of applications in other areas that include supply chain coordination, wireless spectrum allocation and transportation. Current research in the multi-unit auction domain ignores the budget constraint faced by participants. We address the computational issues faced by the auctioneer when dealing with budget constraints in a multi-unit auction. We propose an optimization model and solution approach to ensure that the allocation and prices are in the core. We develop an algorithm to determine an allocation and Walrasian equilibrium prices (when they exist) under additive bidder valuations where the auctioneer's goal is social welfare maximization and extend the approach to address general package auctions. We, also, demonstrate the applicability of the Benders decomposition technique to model and solve the revenue maximization problem from an auctioneer's standpoint

Predicting the performance of conservation tenders when information on bidders's costs is limited

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 not well developed for this type of auction. This paper examines the predictive capacity of a simple model developed for budget-constrained tenders, already used to design new conservation programs, by submitting it to controlled lab experiments. We study the capacity of the model to predict both experimental bids and the performance of the auction institution, based on the kind of limited information typically available to a conservation agency. We conclude there exists an optimal level of information on bidders’ costs, neither too large nor to small, making the tender worth considering as a policy option as well as allowing an ex-ante assessment of its economic performance

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

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

Predicting the performance of conservation tenders when information on bidders's costs is limited

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 not well developed for this type of auction. This paper examines the predictive capacity of a simple model developed for budget-constrained tenders, already used to design new conservation programs, by submitting it to controlled lab experiments. We study the capacity of the model to predict both experimental bids and the performance of the auction institution, based on the kind of limited information typically available to a conservation agency. We conclude there exists an optimal level of information on bidders’ costs, neither too large nor to small, making the tender worth considering as a policy option as well as allowing an ex-ante assessment of its economic performance.Auctions, procurement, tenders, conservation, learning, economic experiments,

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

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