Agri-environmental auctions with synergies

Abstract

Auctions are increasingly used in agri-environmental contracting. However, the issue of synergy effect between agri-environmental measures has been consistently overlooked, both by decision-makers and by the theoretical literature on conservation auction. Based on laboratory experiments, the objective of this paper is to compare the performance of different procurement auction designs (simultaneous, sequential and combinatorial) in the case of multiple heterogeneous units where bidders may potentially want to sell more than one unit and where their supply cost structure displays positive synergies. The comparison is made by using two performance criteria: budget efficiency and allocative efficiency. We also test if performance results are affected by information feedback to bidders after each auction period. Finally we explain performance results by the analysis of bidding behaviour in the three mechanisms.