Negative Values in Vickrey Auctions

Some people assign negative values for new products sold on laboratory auction blocks (i.e., irradiated meat). We explore bidding behavior in two Vickrey auctions when people have positive- and negative-induced values for the good. Aggregate bidding in the second-price auction is precise but biased—highest-value positive bidders tend to overstate benefits, whereas lowest-negative bidders understate losses. In contrast, bidding behavior in the random n th-price auction is demand revealing irrespective of induced value, but it is imprecise. Examining on- and off-margin bidding behavior, we cannot conclude that any segments of demand are significantly different than the demand revealing regression line.     

Value elicitation for multiple quantities of a quasi‐public good using open ended choice experiments and uniform price auctions

Choice experiments and experimental auctions have become popular mechanisms for estimating willingness to pay (WTP). However, these methods have primarily been used for estimating WTP for single units of goods. We analyze the results from experimental auctions and choice experiments in the context of multiple quantities of a quasi‐public good (animal welfare product). We show that the use of WTP values for a single unit of a product, a common practice in experimental valuation literature, can result in underestimation of aggregate demand. We use and compare open ended choice experiments (OECE), second price Vickrey auctions, and random Nth price auctions as mechanisms for valuing WTP. Our results also suggest that individual level demand estimates from OECE are less elastic than demand estimates from uniform price auctions.     

Assessing Consumers’ Willingness to Pay for Different Units of Organic Milk: Evidence from Multiunit Auctions

Experimental auctions are normally conducted using single‐unit auctions. In this paper, we use the multiunit Vickrey auction to assess the determinants of consumers’ willingness to pay (WTP) for organic milk in a multiunit shopping scenario. We also analyze the effect of positive and negative information about organic farming on WTP. Our results suggest that consumers are willing to pay a premium for organic milk but that this WTP decreases with the number of units purchased. Results also suggest that health issues, high price of organic foods, taste, and lack of information on organic foods are factors that influence WTP for organic milk. The type of information provided also plays a relevant role. Specifically, we found that subjects’ WTP responds positively to positive information about organic farming and responds negatively to negative information. The provision of both positive and negative information does not affect WTP. Les enchères expérimentales sont en règle générale effectuées sous un cadre d’enchères de Vickrey à une seule unité. Dans le présent article, nous avons utilisé l’enchère de Vickrey à unités multiples pour évaluer les déterminants du consentement à payer (CAP) des consommateurs pour du lait biologique dans un contexte d’achats multiples. Nous avons également examiné les répercussions que l’information positive et négative à l’égard de l’agriculture biologique a sur le CAP. Nos résultats autorisent à penser que les consommateurs sont prêts à payer un prix plus élevé pour obtenir du lait biologique, mais que ce CAP diminue avec le nombre d’unités achetées. Nos résultats autorisent aussi à penser que les aspects liés à la santé, le prix élevé des aliments biologiques, le goût et le manque d’information sur ces aliments sont des facteurs qui influencent le CAP pour du lait biologique. Le type d’information joue également un rôle important. Nous avons observé que le CAP réagit favorablement à de l’information positive sur l’agriculture biologique et défavorablement à de l’information négative. La diffusion simultanée d’information positive et négative n’influence pas le CAP.     

Measuring Food Product Differentiation by Quality Ratings: A Cross‐Entropy Analysis of Specialty Coffee e‐Auctions

Food quality ratings can be used for product differentiation and strategic marketing. This article develops a differentiation measure based on the cross‐entropy of two distributions for speciality coffees. It examines whether quality ratings achieve their objectives for speciality coffee supply chains. The estimation, using e‐auctions data, indicates that the quality rating is more informative in the Cup of Excellence (CofE) relative to the Q auction. To determine significance, a statistical test for comparing the information measure across different e‐auctions and segments of the quality rating was developed. The significant difference between the two auctions is not a surprise as the auctions trade coffee lots of different volumes and the quality evaluation is more important in the case of the CofE, with its jury of renowned coffee experts. The total cross‐entropy measure of product differentiation shows that the 100‐point quality rating does not carry the same information content and meaning in the two different e‐auctions and their respective supply chains. The cross‐entropy measure of product differentiation is shown to be a good indicator of the information and the value created throughout the speciality food supply chain.     

Preference Learning in Consecutive Experimental Auctions

This paper explores the origins of the strikingly high price premia paid for new food products in lab valuation exercises. Our experimental design distinguishes between two explanations of this phenomenon: novelty of the experimental experience versus the novelty of the good, i.e., preference learning—bids reflect a person's desire to learn how an unfamiliar good fits into their preference set. Subjects bid in four consecutive experimental auctions for three goods that vary in familiarity, candy bars, mangos, and irradiated meat. Our results suggest that preference learning is the main source of the high premia, and that novelty of the experimental experience does not in itself artificially inflate valuations.     

Anti-Waste Labeling and Consumer Willingness to Pay

ABSTRACT

Food waste is an important topic in the general context of food consumption sustainability and ethical consumption. Several studies have focused on environment-friendly labeling schemes based on different “ethical attributes,” such as organic, fair trade, and locally grown. However, the effect of a labeling scheme based on food waste prevention has never been studied. In the current work, experimental auctions were used to investigate the effect of a certification about containing food waste within a certain threshold on participants’ willingness to pay. The product chosen for the auctions was the French baguette (500 g) packaged with a paper wrapper. Furthermore, we examined whether the effect would be moderated by different communication strategies about the consequences of wasting. Specifically, two different frames of reference were used: the first is based on the carbon footprint, the other on the water footprint. Our results showed that waste prevention–based labeling positively affected participants’ willingness to pay and that this effect was enhanced by the carbon footprint frame of reference.     

The valuation of market information from livestock selling complexes

The efficient operation of livestock markets is contingent upon producers accessing relevant market information which assists adjustment to production and distribution. This article provides an analysis of the value of market information gleaned by producers attending public livestock auctions. The article uses the Travel Cost Method to quantify the value of this information and notes the limitations of applying the Travel Cost Method in this context.     

The Effect of Initial Endowments in Experimental Auctions

We report the results of an experiment designed to test whether initial endowments affect value estimates elicited from experimental auctions. Comparing bids for one unit of a good, two units of a good, and a second unit of a good when endowed with the first unit, we find that willingness to pay for the second unit of a good is, on average, as much as 75% higher when endowed with the first unit. We go on to advance two theories that could potentially reconcile our results with neoclassical consumer theory.     

Auctions as a Means of Creating a Market for Public Goods from Agriculture

The paper looks at the possibility of creating a market for environmental goods and services in the countryside by awarding conservation contracts to farmers on the basis of competitive bidding. Auctions have several theoretical advantages over alternative allocation mechanisms (such as standard-rate payments) because they allow the participants to deal with informational asymmetries and the uncertainty about the value of the (non-market) goods being traded. A formal model of bidding behaviour in ‘green auctions’ shows that bidding strategies are determined by the individual farmers' costs of implementing the conservation contracts and their beliefs about the maximum acceptable payment level, making the auction an imperfect cost revelation mechanism. Auctions can reduce the information rents accruing to farmers and can increase the cost-effectiveness of public goods provision. Strategic bidding behaviour in multiple-signup auctions as well as high transaction costs are potential sources of reduced efficiency.     

Experimental evidence on the resilience of a cap & trade system for land consumption in Germany

The German government has committed to substantially limiting future land consumption. Among the most prominently discussed policy instruments is the implementation of a cap & trade system for land consumption, in which a limited amount of certificates is allocated to and traded by municipalities. Since these certificates would be a prerequisite for conducting building projects, this system is expected to reduce urban sprawl and foster the efficient allocation of land consumption projects. While previous empirical studies have supported these projections, the potential fragility of a cap & trade system in the case of macroeconomic shocks has not been considered. In three laboratory experiments, we simulate the impact of economic and budgetary crises within a cap & trade scheme for land consumption. We find that a market-based system succeeds in compensating macroeconomic disturbances with only minor welfare losses. Certificate prices in auctions and trading are somewhat more volatile before shocks, yet normalize afterwards. Trading volumes and the specifics of project realizations remain largely unaffected. Unrelated to the macroeconomic shocks, auction and market prices persistently diverge, leading to income redistributions to the state. Overall, our evidence supports the introduction of a market-based certificate scheme to reduce land consumption in Germany due to its resilience against potential shocks.     

Auctions with and without the Right of First Refusal and National Park Service Concession Contracts

The National Park Service has struggled to improve the quality of service provided by concessioners for decades. To address these concerns, the Park Service eliminated the right of first refusal from the largest revenue-generating concession contract auctions beginning in 2000. This article provides models of concession contract auctions with and without the right of first refusal. The optimal bidding strategies and expected level of service are found. The results confirm the auction without the right of first refusal leads to bids that include a higher level of service.     

Experimental Auction Procedure: Impact on Valuation of Quality Differentiated Goods

Despite increased use of experimental auctions, a myriad of different procedures are being employed without formal consideration of how the procedures might affect results. This study investigates the effect of several procedural issues on valuation estimates from experimental auctions. Results indicate the second price auction generates higher valuations than English, Becker–DeGroot–Marschak (BDM) , and random n th price auctions, especially in latter bidding rounds, and that random n th price auction yields lower valuations than English and BDM auctions. We find that endowing subjects with a good prior to eliciting bids can have an impact on valuations, but the effect varies across auction mechanism.     

An experimental approach to valuing information

This article proposes a method to directly measure the value of information (VOI) conveyed in a label. Using data collected from a field experiment conducted in two grocery stores in Texas, we find the VOI contained in U.S. federally mandated country of origin labels for beef and pork is 36% lower using the new direct elicitation compared to the conventional approach. The mean value‐of‐origin information, in the context of our experiment, ranges from $0.016 to $1.08 per pound of steak/chop purchased, depending on the valuation method used and assumptions about labeling knowledge and average volume purchased per choice. The VOI is substantively influenced by ethnocentrism and meat consumption frequency.     

On Food Companies Liability for Obesity

The U.S. food industry faces tobacco-style lawsuits for providing misleading information about health risks linked to the consumption of fatty products. This article investigates the link between alternative liability rules and the incentive for disclosing health information to consumers. We show that if the expected damage is relatively low, the absence of intervention is socially optimal. If the expected damage is not too high, mandatory labeling is socially optimal. Liability rules are only welfare-enhancing for high levels of risk and/or when consumers misperceive health warnings.     

The effect of on-site forest experience on stated preferences for low-impact timber harvesting programs

An important issue in the design of stated-preference surveys is whether the information provided to respondents within a survey instrument is adequate to yield valid value estimates. Providing respondents with on-site experience about forest ecosystem management alternatives may influence their expectation of the effects from new policies and programs. In the research reported here, we investigate whether preference parameters for attributes of low-impact timber harvesting programs differ between respondents to a mail survey versus respondents provided with an on-site forest experience (walk through a research forest). The empirical analysis in our application shows that stated preferences for timber harvesting attributes are not statistically different between the mail and on-site applications of the survey, and this result is robust to pretest (before experience) and post-test (post experience) applications.     

Does It Pay to Increase Competition in Combinatorial Conservation Auctions?

Conservation auctions allow landholders to propose conservation projects and associated payments (bids) for consideration by a conservation agency. Recently, the application of iterative combinatorial auction designs has been proposed to improve outcomes of conservation auctions. In combinatorial auctions, landholders are allowed to offer projects each of which involves activities aimed at providing one or multiple services. An iterative format allows bidders the opportunity to gradually explore the type of projects they want to offer, with this process being facilitated through price feedback provided based on intermediate auction round results. Auction designs vary with the type of feedback and respond differently to market conditions. At present there is a lack of information about their performance in markets with varying degrees of competition (in terms of number of bidders and level of target). Therefore, using an agent‐based simulation model, we evaluate a number of iterative auction designs. We observe that a higher degree of competition leads to a higher auction efficiency. In a high competition environment, efficiency outcomes tend to be less sensitive to auction design choices. Therefore, an auctioneer could enjoy freedom in design choice if adequate competition could be ensured. In weak competition environments, however, some auction designs perform better than others.     

Producer Experience, Learning by Doing, and Yield Performance

Current crop insurance rating procedures consider only performance for the individual crop in question. Recent farm legislation has given producers considerable planting flexibility and, as a result, many have shifted to new crops. Producers without a production history for the new crop may be offered levels of insurance that do not accurately reflect their expected yields. Likewise, premium rates may not reflect a producer's actual risk for a new crop. We examine the extent to which information about expected yields may be gleaned from a consideration of historical performance on other crops. We also consider the extent to which yield performance exhibits learning by doing such that yields improve with experience. Though the results are mixed, we generally find that yield performance tends to improve with experience. However, when yields are conditioned on historical yield performance for other crops, the importance of experience is diminished significantly. Yield performance is related to a number of farm characteristics. Finally, we examine the extent to which yield variability is correlated across crops for individual farmers. Implications for crop insurance rating practices are discussed. The results demonstrate robust correlation between a farm's historical yield on other crops and a newly produced crop—a factor largely ignored in current crop insurance contracts.     

Insights from Anticipatory Prices

Contemporaneous observations on expected supply and on prices of post‐harvest futures contracts for corn are used to estimate expected demand relationships. These equations are used to estimate the prices of the post‐harvest contracts based on new supply estimates. Each estimate can be compared with a corresponding futures price, i.e. the market forecast. The differences help discern the market expectations about the expected demand for the new crop relative to historical experience, which can help support outlook analyses. We find that in recent years, a 100 million bushel change in the expected supply of corn results in about a 6 cent per bushel negative change in the price of December corn. The discussion also deepens understanding of the term ‘anticipatory prices’ as defined by Holbrook Working in his 1958 work.     

Asymmetric information in cattle auctions: the problem of revaccinations

We analyze the problem of asymmetric information between buyers and sellers in cattle auctions, using the problem of revaccinations as the point of departure. We present a simple model to show that if buyers do not know and cannot verify whether sellers have vaccinated their animals, then they may consider revaccination. Revaccination is only a part of the broader problem of information asymmetry that includes other quality issues and costs that can be saved, thereby affecting the welfare of both buyers and sellers. We consider structural characteristics of ranching, traditions, and consumers' preferences as well as proposals regarding third‐party certification to argue that the problem of asymmetric information in cattle auctions is a persistent one. We also argue for a comprehensive empirical study of the incidence and impacts of buyer revaccination.     

The dynamics of household beef consumption in Cameroon

Recent changes in economic conditions have introduced notable changes in household beef consumption patterns in Cameroon. While consumers are concerned about the short- and long-run effects of these factors on beef consumption habits, policy makers are more worried about the appropriate period necessary for households to make complete adjustments in consumption since this information is vital for planning production. Static and dynamic demand frameworks involving the Nerlovian partial adjustment (PA) model are used to capture the dynamic nature of beef consumption parameters. Maximum likelihood estimates of the PA model reveal that the conditioning variables explain 79% of the variation in beef consumption. Income, previous consumption, own-price and prices of fish and pork are jointly important in explaining beef consumption habits. Beef is a normal good with pork and fish as substitutes and chicken as a complement. Long-run price and income elasticities are greater than but not significantly different from their short-run values, suggesting that adjustment in consumption is fast with about 80% of the difference between actual and ‘desired’ consumption being completed in about 2 years. Projections show that demand for beef will reach 109620 t by the year 2000. giving an incremental total and per capita demand of 31 730 tons and 1.84 kg, respectively.