Conservation Auctions, Collusion and the Endowment Effect

Tinbergen Institute Discussion Paper 2018-093/VIII

37 Pages Posted: 13 Dec 2018

See all articles by Justin Dijk

Justin Dijk

VU University Amsterdam

Erik Ansink

VU University Amsterdam - Department of Spatial Economics

Daan van Soest

Tilburg University - CentER & Department of Economics

Date Written: November 19, 2018

Abstract

We contribute to the literature on the optimal design of auction mechanisms for the procurement of nature conservation activities. We use an economic experiment to examine whether the market efficiency of conservation auctions increases or decreases with repetition. Theory predicts that repetition facilitates collusion among sellers in procurement auctions, while behavioral economics suggests that repetition may increase market efficiency because it attenuates the endowment effect - the phenomenon that ownership of a good tends to increase one's valuation of the good. We find that of these two countervailing effects, the latter has the upper hand; average bids decrease monotonically over the consecutive auctions. Since repetition increases market efficiency, conservation contracts can be of shorter duration and procured at a higher frequency than has been suggested before.

Keywords: Auctions, procurement, endowment effect, collusion, nature conservation

JEL Classification: C91, D44, H57, Q57

Suggested Citation

Dijk, Justin and Ansink, Erik and van Soest, Daan P., Conservation Auctions, Collusion and the Endowment Effect (November 19, 2018). Tinbergen Institute Discussion Paper 2018-093/VIII. Available at SSRN: https://ssrn.com/abstract=3287932 or http://dx.doi.org/10.2139/ssrn.3287932

Justin Dijk (Contact Author)

VU University Amsterdam ( email )

De Boelelaan 1105
Amsterdam, ND North Holland 1081 HV
Netherlands

Erik Ansink

VU University Amsterdam - Department of Spatial Economics ( email )

De Boelelaan 1105
1081HV Amsterdam
Netherlands

Daan P. Van Soest

Tilburg University - CentER & Department of Economics ( email )

P.O. Box 90153
5000 LE Tilburg
Netherlands
+31 13 466 2072 (Phone)

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