How well do conservation auctions perform in achieving landscape-level outcomes? A comparison of auction formats and bid selection criteria

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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.

Original languageEnglish
Pages (from-to)557-575
Number of pages19
JournalThe Australian Journal of Agricultural and Resource Economics
Volume61
Issue number4
DOIs
Publication statusPublished - Oct 2017

Cite this

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title = "How well do conservation auctions perform in achieving landscape-level outcomes? A comparison of auction formats and bid selection criteria",
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, ECOSYSTEM SERVICES, BIODIVERSITY, QUEENSLAND, CONTRACTS, PROVISION, INDONESIA, PAYMENTS, UNIFORM, DESIGN",
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year = "2017",
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N2 - 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.

AB - 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.

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