How Well Do Conservation Auctions Perform in Achieving Landscape‐Level Outcomes? A Comparison of Auction Formats and Bid Selection Criteria

19 Pages Posted: 4 Oct 2017

See all articles by Md Sayed Iftekhar

Md Sayed Iftekhar

The University of Western Australia

Uwe Latacz‐Lohmann

University of Kiel

Date Written: October 2017

Abstract

This paper studies the performance of auction design features regarding pricing mechanisms and bid selection criteria for securing wildlife zones across different holdings. We compare two pricing mechanisms: a discriminatory‐price auction and a uniform‐price ascending auction, and four bid selection criteria on the basis of: total bid, bid‐per‐value ratio, bid‐per‐area ratio and a mixed criterion where bids are formed on the basis of cost but they are selected based on the bid‐per‐value ratio. We develop a best‐response group‐bidding model for a discriminatory‐price auction where bidders form optimal group bids for individual wildlife zones. In the uniform‐price ascending auction, individual landholders respond to prices, which are successively raised by the auctioneer and whenever all the landholders from a single zone agree to participate (i.e. the first zone is formed), the auction stops. Based on numerical simulations using a bio‐economic model of malleefowl conservation, we observe that the discriminatory‐price auction is more cost‐effective than the uniform‐price ascending auction. However, the budgetary cost‐effectiveness of a discriminatory‐price auction is sensitive to bidder uncertainty about the number of competing bidder groups and the highest cost of establishing a wildlife zone among these groups. In terms of bid selection, the mixed bid selection criterion performs best. We discuss the policy implications of these findings.

Keywords: conservation auction, discriminatory‐price auction, environmental service payments, group bidding, landscape auction, uniform‐price auction

Suggested Citation

Iftekhar, Md Sayed and Latacz‐Lohmann, Uwe, How Well Do Conservation Auctions Perform in Achieving Landscape‐Level Outcomes? A Comparison of Auction Formats and Bid Selection Criteria (October 2017). Australian Journal of Agricultural and Resource Economics, Vol. 61, Issue 4, pp. 557-575, 2017. Available at SSRN: https://ssrn.com/abstract=3046892 or http://dx.doi.org/10.1111/1467-8489.12226

Md Sayed Iftekhar (Contact Author)

The University of Western Australia ( email )

35 Stirling Highway
Crawley, Western Australia 6009
AUSTRALIA

Uwe Latacz‐Lohmann

University of Kiel

Olshausenstr. 40
D-24118 Kiel, Schleswig-Holstein 24118
Germany

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