Agri‐Environmental Auctions for Phosphorus Load Reduction: Experiences from a Finnish Pilot

18 Pages Posted: 3 Apr 2014

See all articles by Antti Iho

Antti Iho

MTT Agrifood Research Institute

Jussi Lankoski

Agrifood Research Finland

Markku Ollikainen

University of Helsinki - Department of Political and Economic Studies

Markku Puustinen

University of Helsinki

Jonne Lehtimäki

University of Turku; Statistic Finland

Date Written: April 2014

Abstract

We examine environmental auctions on working agricultural lands. We organized a discriminatory auction where farmers were asked to make bids on spreading gypsum on their fields to reduce phosphorus loads to surface waters. The parcel‐specific bids were ranked based on their load reduction–compensation ratios. To assess load reductions, we built an environmental benefit index (EBI) based on three factors: P‐status of the soil (phosphorus available for crops), field slope and location with respect to waterways. As the per tonne price of gypsum delivery from the factory was higher for small quantities, the auction format allowed bundling of field parcels to reduce transportation costs. We evaluate auction's ability to target the environmental (or abatement) measures to field parcels with the highest load reduction potential and analyse the economic efficiency of the auction by comparing the pilot auction with simulated bidding behaviour and with hypothetical flat rate payment schemes. The pilot auction targeted the environmental measures effectively. It was also more efficient than a flat rate payment, even when the flat rate scheme was combined with an EBI eligibility criterion.

Keywords: agri‐environmental auction, environmental benefit index, information rent, phosphorus load, pilot

Suggested Citation

Iho, Antti and Lankoski, Jussi and Ollikainen, Markku and Puustinen, Markku and Lehtimäki, Jonne, Agri‐Environmental Auctions for Phosphorus Load Reduction: Experiences from a Finnish Pilot (April 2014). Australian Journal of Agricultural and Resource Economics, Vol. 58, Issue 2, pp. 205-222, 2014. Available at SSRN: https://ssrn.com/abstract=2419754 or http://dx.doi.org/10.1111/1467-8489.12049

Antti Iho (Contact Author)

MTT Agrifood Research Institute ( email )

Luutnantintie 13
Helsinki
Finland

Jussi Lankoski

Agrifood Research Finland

Helsinki
Finland

Markku Ollikainen

University of Helsinki - Department of Political and Economic Studies ( email )

P.O. Box 54
FIN-00014 Helsinki
Finland

Markku Puustinen

University of Helsinki

University of Helsinki
Helsinki, FIN-00014
Finland

Jonne Lehtimäki

University of Turku ( email )

Statistic Finland ( email )

Finland

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