Exploring the cost effectiveness of land conservation auctions and payment policies*

This article evaluates the cost‐effectiveness of the Catchment Care Australian conservation auction. It provides evidence of auction cost effectiveness, and estimates cost savings from two discrete components: (i) the opportunity cost revelation incentive provided by the auction mechanism, and (ii) the improved environmental targeting capacity that results from development of a scientifically based environmental benefits assessment capacity. Results show that there are potentially very large returns associated with the latter component that have been overlooked in the literature. Additionally, transaction costs involved with administering the case study conservation auction and the prior non‐auction payment policy are compared. We find that the administration costs for the auction were greater than or equal to those associated with the prior policy. Estimates of relative cost effectiveness across policies are shown to be sensitive to the methods of comparison. In this case study, there is inelastic supply of the last units of environmental benefit. This inelasticity results in large estimated auction comparative cost advantage when the benefit metric is the estimated cost required to achieve auction aggregate environmental benefit. Estimated benefit of the auction is much less when measured as environmental benefits attainable with alternative payment policies subject to the auction budget constraint.     

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

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.     

Impact of Purchase Intentions on Full and Partial Bids in BDM Auctions: Willingness‐to‐pay for Organic and Local Blueberries

We conduct a series of Becker–DeGroot–Marschak (BDM) auctions to elicit consumers' willingness‐to‐pay (WTP) for organic and local blueberries. Participants' intentions to purchase the auction product were collected to determine how purchase intentions for the auction products affect their partial bids (WTP for an additional attribute) as well as full bids (WTP for the auction product). The results suggest, as expected, that full bids from participants with purchase intention for the auction product are significantly higher than those from participants without purchase intention. However, the partial bids, which are inferred from the full bids, for organic and local attributes are consistent across participants with different purchase intentions. Therefore, if the focus of a BDM auction is consumers' WTP for product attributes, purchase intentions may not be an important influence on the value.     

Land Heterogeneity,Agricultural Income Forgone and Environmental Benefit: An Assessment of Incentive Compatibility Problems in Environmental Stewardship Schemes

This paper examines the issue of incentive compatibility within environmental stewardship schemes, where incentive payments to farmers to provide environmental goods and services are based on foregone agricultural income. The particular focus of the paper is land heterogeneity, either of agricultural or environmental value, leading to divergence between the actual and socially optimal level of provision of environmental goods and services. Given land heterogeneity, such goods and services are likely to be systematically over‐ or under‐provided in response to a flat rate payment for income foregone.     

The impact of deal‐proneness on WTP estimates in incentive‐aligned value elicitation methods

Even after controlling for hypothetical biases, some incentive‐aligned value elicitation methods still produce different willingness‐to‐pay (WTP) estimates. In this study, we compare WTP estimates from three incentive‐aligned value elicitation methods: real choice experiment (RCE), real double‐bounded dichotomous contingent valuation (RCVM), and Becker–DeGroot–Marschak auction (BDM). We find that participants’ aggressiveness in obtaining low prices (i.e., “deal‐proneness”) influences WTP estimates in the BDM auction, but not those elicited from the RCE and RCVM. The participants with higher levels of deal‐proneness tend to submit lower bids in the BDM auction. The discrepancies in WTP estimates between different incentive‐aligned procedures are narrower for participants with lower levels of deal‐proneness. Our results indicate that the bids in BDM auctions may be understated and the auction mechanism may induce the “gambling behavior” of people who are deal‐prone. That is, whether the BDM auction is truly incentive‐aligned is again called into question. We also discuss the practical implications for food retailers.     

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.     

Auction winning,social dynamics and non-compliance in a payment for ecosystem services scheme in Indonesia

Conservation auctions for payment for ecosystem services (PES) are useful to identify the levels of incentives that will cover the opportunity costs of farmers supplying ecosystem services. Although auctions are increasingly used for allocation in PES schemes, the factors that lead to their successful implementation and eventual environmental outcomes are poorly understood in developing countries. We investigated the socio-economic and institutional contexts that led to smallholders' auction winning and eventual compliance using linear mixed-effects models, and post-auction and post-contract surveys. We employed a case study of a conservation contract preceded by a sealed-bid, multiple round, uniform price auction for watershed services from coffee farmers in Lampung, Indonesia. The auction participants presented low education levels, low asset endowments and small plot sizes. The study obtained evidence that farmers with larger plot areas were more likely to win the contracts, suggesting economies of scale. Most farmers considered the auction a fair self-selection mechanism to allocate contracts where allocation was not influenced by power or social rank. Non-compliance was associated with labor availability constraints, short duration of land ownership and existence of previous conservation applications, suggesting lax of capability to invest in applying conservation agriculture. Final bids were however not good predictors of compliance, among other factors, calling into question the potential of auctions to elicit the actual incentive from the farmers. Ensuring that farmers understand the purposes of auctions for effective contract allocation beyond a mere game and identifying farmers that might encounter difficulties fulfilling the contract could increase the likelihood that such a PES scheme would be successful.     

Cost-effective nitrogen leaching reduction as influenced by linkages between farm-level decisions

This article focuses on how the linkages between various farm‐level decisions affect the choice of measures to reduce nitrogen leaching from crop production. A mathematical programming model is developed. The model considers not only management decisions that affect nitrogen leaching directly, but also other decision variables such as scheduling of field operations and machinery investments. A simplified analysis that ignores the latter management decisions, and the linkages between the various decisions, may result in abatement policies that are not cost‐effective because the policies will have other effects than expected. As an example, the empirical results show that subsidies to catch crops and spring ploughing may contribute to increased nitrogen load, quite contrary to the purpose of these subsidies. Further, it is noted that the characteristics of the production system make it costly to change land use, tillage practices, or fertilizer use drastically. Instead, cost‐effective nitrogen abatement includes a mix of various adjustments of farm‐level production practices. The EU set‐aside payment appears to reduce abatement costs.     

Adverse Selection in the Environmental Stewardship Scheme: Does the Higher Level Stewardship Scheme Design Reduce Adverse Selection?

The Environmental Stewardship Scheme provides payments to farmers for the provision of environmental services based on foregone agricultural income. This creates a potential incentive compatibility problem which, combined with information asymmetry about farm land potential, can lead to adverse selection of land into the Scheme and therefore a less cost‐effective provision of environmental goods and services. However, the Higher Level Stewardship (HLS) Scheme design includes some features that potentially reduce adverse selection. This paper studies the adverse selection problem of the HLS using a principal‐agent framework at the regional level. It is found that, at the regional level, the enrolment of more land from lower payment regions for a given budget constraint has reduced the adverse selection problem through contracting a greater overall area and thus higher overall environmental benefit. In addition, for landscape regions with the same payment rate (i.e. of the same agricultural value), differential weighting of the public demand for environmental goods and services provided by agriculture (measured by weighting an environmental benefit function by the distance to main cities) appears to be reflected in the regulator’s allocation of contracts, thereby also reducing the adverse selection problem.     

Farm Type Effects of an EU‐wide Direct Payment Harmonisation

In this study, we analyse how three scenarios involving different levels of harmonisation of common agricultural policy (CAP) decoupled payments in the EU affect the distribution of farm income across regions and farm types. We use the farm type extension of the common agricultural policy impact (CAPRI) model, which captures farm heterogeneity across the EU. The first scenario (NUTS1) assumes uniform per‐hectare payments at the NUTS1 level. The second scenario (MS‐CONV) equalises the per‐hectare rates inside each Member State (MS) and partially harmonises the single payment scheme (SPS) across MS in line with the 2011 Commission proposal. The third scenario simulates a uniform per‐hectare payment at the EU level. Depending on the implementation of the SPS, the NUTS1 flat rate induces a substantial redistribution of payments across farm types and NUTS2 regions, particularly in regions that apply the historical SPS. The MS‐CONV and EU flat‐rate schemes have more significant impacts at the EU‐wide level. In the EU‐15, almost all farms lose payments from MS‐CONV and EU‐wide flat rates, whereas in the EU‐10, almost all farm types gain from these scenarios. Our conservative estimates indicate that the flat‐rate payments could redistribute up to €8.5 billion. Lower land rental costs partially offset the losses of farm income in the EU‐15 from payment redistribution. Land rents drop for all flat‐rate scenarios across most sectors and farm sizes in the EU‐15. In the less productive new MS, the landowners’ rental income is largely unaffected by the introduction of the flat rate.     

油菜秸秆还田及化肥配施的水稻经济环境效益分析

[目的]为提高秸秆还田的效率和综合效益,探讨秸秆还田及化肥配施对水稻的经济和生态环境的影响。[方法]文章设置了无秸秆不施肥(CK)、秸秆全量覆土还田不施肥(S)、无秸秆常规施肥(F)、秸秆全量覆土还田+常规施肥(SF)、秸秆全量覆土还田+常规施肥减15%(SDF) 5个处理进行田间小区试验,研究其经济环境效益。[结果]在经济效益方面,秸秆还田+常规施肥(SF)产量最高,与无秸秆常规施肥(F)相比,增产了2.28%,纯收益增加1.52%,秸秆还田对经济效益有促进作用。在环境效益方面,与无秸秆常规施肥(F)相比,秸秆全量覆土还田+常规施肥(SF)和秸秆全量覆土还田+常规施肥减15%(SDF)显著降低总氮(TN)径流流失总量10.75%和28.67%,总磷(TP)径流流失总量分别降低1.45%和2.90%。[结论]综合经济环境效益得出,在常规施肥条件下,秸秆还田可以实现作物增产增收,农田径流氮磷流失减少,化肥投入品减量。     

A Sealed‐bid Double Auction Experiment on German Milk Quota Exchanges

Standard double auctions perfectly mimic the neoclassical idea about the functioning of markets. The efficiency of the market outcome and speed of adjustment towards equilibrium have been studied in the literature to validate economic expectations. However, only a few real world examples outside the financial sector exist. In 2000, Germany implemented a sealed‐bid double auction mechanism for trading milk quota. The two main features of this mechanism are: (1) a sealed‐bid double auction that produces excess demands that are covered by state reserves free of charge, and (2) a variable price band that is used to exclude price bids above a certain range. To study these regulations a sealed‐bid double auction experiment is simulated and run with students. It is shown that the regulations lead to significant losses in welfare that are caused by direct effects and by an imperfect adjustment of individual bidding behaviour. Further, learning effects throughout the experiments appear to be very limited. Thus, complex auction mechanisms may need to be thoroughly tested before being introduced in the real world.     

Optimal conservation investment for a biodiversity‐rich agricultural landscape*

This study develops a theoretical and empirical framework for optimal conservation planning using satellite land cover data and economic data from a farm survey. A case study is presented for a region within the South‐west Australia Biodiversity Hotspot (Nature 403, 853). This Biodiversity Hotspot is a focus for conservation investment as it combines a relatively high level of biodiversity with severe threat to the biodiversity from agriculture. The conservation planning model developed determines the optimal set of bush fragments for conservation. This model can also be used to assess the trade‐off between the budget and a vegetation species metric. Results from the case study show that, without an effective conservation scheme that at least fences fragments, significant plant biodiversity losses will occur in the North East Wheatbelt Regional Organisation of Councils region of the WA wheatbelt over a 10‐year period. A perfect price discriminating auction scheme could reduce the costs of conservation by around 17 per cent relative to a fixed‐payment scheme; however, a fixed payment on outcome (measured as change in the species metric) scheme represents a viable second‐best alternative, to a conservation auction, where conservation spending is spatially targeted.     

Auctions for conservation contracts: an empirical examination of Victoria's BushTender trial

The present paper proposes that markets for nature conservation on private land are missing because of the problem of asymmetric information. An auction of conservation contracts was designed to reveal hidden information needed to facilitate meaningful transactions between landholders and government. The present paper describes the key elements of auction and contract design employed and the results obtained from a pilot auction of conservation contracts run in two regions of Victoria. The pilot demonstrated that it was possible to create at least the supply side of a market for nature conservation and in conjunction with a defined budget, prices were discovered and resources allocated through contracts with landholders. The present paper compares a discriminative price auction with a hypothetical fixed-price scheme showing that an auction could offer large cost savings to governments interested in nature conservation on private land. The paper identifies some important design problems that would need to be solved before auctions could be applied more broadly including: multiple complementary outcomes, reserve prices, sequential auction design and contract design. Nevertheless, the paper does show that auctioning conservation contracts for environmental outcomes is an important new policy mechanism that deserves closer examination.     

The leakage and livelihood impacts of PES contracts: A targeting experiment in Malawi

Most evaluations of payments for environmental services programs focus on immediate environmental impacts, and do not measure the effects on socioeconomic outcomes or on other land use activities (leakage). Efficient allocation of land use contracts, through auctions for example, may help mitigate concerns about adverse livelihood or leakage effects. This study reports on a field experiment that varied the allocation of afforestation contracts to smallholder farmers in Malawi. Households were randomly assigned to participate in an auction or in a lottery for the contracts, which provided three years of payment based on tree survival outcomes. Households that did not receive a contract as a result of the lottery form a pure comparison group. The results show evidence for within-farm leakage for households that received a contract at random, in the form of additional land clearing. Randomly contracted households are also more likely to report household labor shortages. These effects are mitigated to some degree when contracts are assigned through an auction. Together, the results point to leakage and livelihood impacts from payments for environmental services that are often overlooked in standard evaluations, but which may be reduced through improvements in contract targeting.     

基于种养平衡的成都市畜禽养殖环境效应分析

[目的]文章以成都为实例,旨在科学估算畜禽养殖产排污总量和耕地承载负荷,准确评价畜禽养殖潜在环境风险状态。[方法]通过收集成都市农业统计数据,依据我国有关畜禽的产排污系数,根据计算公式估算了2015年成都畜禽养殖粪便、粪便氮和粪便磷的产生量,估算了成都各区(市)县畜禽粪便、粪便氮和粪便磷的耕地承载负荷和警报值,采用畜禽粪便耕地负荷警报值分级方法评价了畜禽粪便、粪便氮和粪便磷的潜在环境风险状态。[结果]2015年成都畜禽粪便、粪便氮和粪便磷的产生总量分别为1 031.90万t、5.69万t、1.09万t,其中生猪粪便、粪便氮和粪便磷的产生量分别为707.49万t、3.24万t、0.77万t,贡献率最大,为65.51%,其次分别为家禽20.25%,牛8.63%,肉兔2.96%和肉羊2.65%;全市平均畜禽粪便、粪便氮和粪便磷的耕地承载负荷分别为20.40t/hm~2、112.51kg/hm~2、21.47kg/hm~2,均低于耕地负荷限量值,警报值均低于0.7,属于Ⅱ级,处于低风险状态,环境容量总体可接受,但大邑县、新津县和邛崃市略超耕地负荷限量值,存在微超载现象。[结论]2015年成都畜禽养殖粪便、粪便氮、粪便磷的耕地承载负荷总体上处于低风险状态,其中有8个区(市)县处于无风险状态,7个区(市)县处于低风险状态,2个区(市)县处于中等风险状态,3个区(市)县处于较高风险状态,没有出现高风险和极高风险状态的区(市)县;从区域布局来看,西南片区有3个区(市)县养殖比重稍大,应该果断调减养殖量;针对成都市畜禽养殖潜在环境风险状态,提出降低环境风险的对策建议,可为成都市调整优化畜禽养殖区域布局,制定畜禽养殖污染防治规划和政府宏观决策提供科学参考。     

The Influence of Biodiversity Provision on the Cost Structure of Swedish Dairy Farming

Multi‐functionality and the provision of eco‐system services are politically highly prioritised aspects of farming. This study uses a Symmetric Generalised McFadden cost function to analyze the relationship between costs of production and the provision of biodiversity for Swedish milk farms. Biodiversity indicators are based on the number of valuable plant species present at the farm and are modeled as an output in the cost function. The results show that the marginal cost of biodiversity increases with higher provision, and that an increased provision of biodiversity also increases the costs of market commodities such as milk and beef. The upward slope of the marginal cost of biodiversity and its competitive relationship with market goods questions the efficiency of support schemes based on voluntary programmes with a flat‐rate per hectare compensation. Instead, the results support targeted environmental policy schemes with zonings and/or the use of biodiversity indicators.     

河北省不同利用方式农田土壤氮磷环境风险分析

弄清不同利用方式农田土壤氮磷养分平衡状况,进而明确其环境风险特征,为进一步指导土壤养分管理及环境政策制定具有重要意义。研究以河北省的粮田、果园和菜地为研究对象,通过分析三种利用方式氮磷的输入、化肥和有机肥的分配比例及氮磷养分的盈余状况,并结合化肥使用环境风险指数,评价三种不同利用方式化肥氮磷的环境风险类型。结果表明,氮总输入量为菜地明显高于果园和粮田,磷总输入量为菜地和果园明显高于粮田,且粮田和菜地氮磷输入主要以化肥为主。三种不同利用方式农田氮磷均呈盈余状态,其中氮盈余率为果园(532.6%)明显高于菜地(61.5%)和粮田(31.6%),磷盈余率为菜地(700.4%)和果园(615.7%)明显高于粮田(66.6%)。化肥氮磷的环境风险指数均为菜地(0.83)明显高于粮田(0.59-0.62),三种不同利用方式下化肥氮磷的环境风险类型均达低度风险及以上,特别是菜地达严重风险。为了农业的可持续发展,河北省粮田应控制氮磷肥的投入,果园和菜地应加大减少氮磷肥化肥投入,以减少对环境的潜在危害。同时为了更好地培肥地力,在控制施肥总量的前提下应加大粮田和菜地有机肥的投入比例。     

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.     

Auctioning contracts for environmental services

Policy‐based markets for environmental services include government procurement, private procurement to satisfy regulatory requirements and private procurement through government offset markets. These markets are increasingly popular and raise questions about optimal procurement under different regulatory frameworks. The design of these schemes draws together issues in auction design and contract theory. Using a mixed adverse selection, moral hazard model, we show that optimal contract design may differ significantly between procurement and regulatory policy environments. We model risk averse landholders to preserve a key feature of the policy environment. These findings have implications for the design of pollution reduction schemes and the rehabilitation of environmental assets.