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.     

The Usefulness of Experimental Auctions in Determining Consumers' Willingness-to-Pay for Quality-Differentiated Products

The validity and effectiveness of using experimental auctions to elicit consumers' willingness-to-pay for closely related, quality-differentiated products is examined. The effect of panelists' demographics on bid values and auction winners, and the impact of experimental procedures on auction prices are analyzed. Demographic variables are poor predictors of bids and auction winners. Experimental procedures such as panel size and initial endowment influence market price level. Relative bid differences for paired samples are primarily influenced by relative differences in taste panel ratings. Relative willingness-to-pay values elicited through experimental auctions appear valid, while actual willingness-to-pay values are influenced by experimental design.     

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.     

Posted Prices and Bid Affiliation: Evidence from Experimental Auctions

In most experimental auctions, researchers ask participants to bid on the same item in multiple potentially binding rounds, posting the price submitted by the top bidder or bidders after each of those rounds. If bids submitted in later rounds are affiliated with posted prices from earlier rounds, this practice could result in biased value estimates. In this article, we discuss the results of an experiment designed explicitly to test whether posted prices affect bidding behavior. We find that for familiar items, high posted prices lead to increased bids in subsequent rounds. Our results have implications for researchers conducting experimental auctions.     

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.     

Willingness to Pay for Multiple Quantities of Animal Welfare Dairy Products: Results from Random Nth‐, Second‐Price,and Incremental Second‐Price Auctions

Nonhypothetical experimental auctions are used to elicit willingness to pay for humane animal care‐certified dairy products: cheese and ice cream. We use second‐price, random Nth‐price, and incremental second‐price auctions in multiproduct, multiquantity, and multiround contexts. The results contrast participants’ bids across different auction mechanisms and different products. Differences in bidding patterns are detected across auction mechanisms as well as products. Our results suggest that subjects on average are only willing to pay a premium price for one unit of humane animal case‐certified ice cream but not for multiple quantities.     

Relating Consumer Willingness-to-Pay for Food Safety to Risk Tolerance: An Experimental Approach

This study investigates the role of risk tolerance in shaping Canadian consumers' willingness-to-pay for food safety risk reductions. Non-hypothetical experimental auctions were used to elicit consumer valuations of food safety improvement. To identify the relationship between food safety concern and risk-reduction valuations, individual risk-perception scores are constructed based on questionnaire responses. Results show willingness-to-pay for improved food safety tends to decrease as individuals become more risk tolerant. Differences in bids across naïve and informed rounds of bidding tend to become smaller with risk tolerance for individuals who initially overestimated the food safety risk.     

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.     

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.     

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.     

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.     

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.     

Agri‐environmental auctions for phosphorus load reduction: experiences from a Finnish pilot

We examine environmental auctions on working agricultural lands. We organized a discriminatory auction where farmers were asked to make bids on spreading gypsum on their fields to reduce phosphorus loads to surface waters. The parcel‐specific bids were ranked based on their load reduction–compensation ratios. To assess load reductions, we built an environmental benefit index (EBI) based on three factors: P‐status of the soil (phosphorus available for crops), field slope and location with respect to waterways. As the per tonne price of gypsum delivery from the factory was higher for small quantities, the auction format allowed bundling of field parcels to reduce transportation costs. We evaluate auction's ability to target the environmental (or abatement) measures to field parcels with the highest load reduction potential and analyse the economic efficiency of the auction by comparing the pilot auction with simulated bidding behaviour and with hypothetical flat rate payment schemes. The pilot auction targeted the environmental measures effectively. It was also more efficient than a flat rate payment, even when the flat rate scheme was combined with an EBI eligibility criterion.     

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.     

Eliciting Willingness‐to‐Pay through Multiple Experimental Procedures: Evidence from Lab‐in‐the‐Field in Rural Ghana

This paper has the objectives of (a) comparing estimated willingness‐to‐pay (WTP) across three elicitation mechanisms (a Becker‐DeGroot‐Marschak [BDM] auction, a kth price auction, and a choice experiment [CE]) and (b) examining how these vary by participation fee. The product under consideration is kenkey made with nutritious maize, biofortified with vitamin A, which gives it a distinct orange color, in contrast to the white and yellow varieties that are traditionally consumed. We use an experiment consisting of 14 treatment arms, conducted in rural Ghana. Our estimation strategy explicitly accounts for the censored (typically at the market price) nature of the bids in the auctions, and the apparently lexicographic choices of several individuals in the CE. We find no evidence of economically meaningful (defined by the minimum currency unit of five pesewas) differences in WTP (although they may be statistically significant) across elicitation mechanisms, or by participation fee, a result that is in contrast to that found in much of the literature. A secondary finding is that the provision of nutrition information positively and significantly affects the marginal WTP for the new maize.     

Testing and Implementing the Use of Multiple Bidding Rounds in Conservation Auctions: A Case Study Application

Conservation auctions are typically framed as closed, discriminatory, single round, first‐price auctions, and are based on the assumption that landholders will offer bids determined by their “independent private values.” Where landholders are unfamiliar with conservation tender processes and the supply of environmental services, they may find it very difficult to construct bids in this way. Bid values may be influenced by other factors, such as concerns about “winner's curse,” a desire to capture economic rent, and premiums for risk and uncertainty factors. Sealed, single round auctions may exacerbate information gaps and uncertainty factors because of the limited information flows compared to traditional market exchanges and open, ascending auctions. In this paper, the cost efficiencies of a multiple bidding round auction for landholder management actions are explored with the use of field experiments and a conservation auction. The case study application is improved grazing management in a rangeland area of Australia, where landholders are unfamiliar with supplying environmental services or conservation auctions. Results suggest that multiple round auctions may be associated with efficiency gains, particularly in initial rounds. Les enchères pour la conservation sont généralement des enchères au premier prix, à un tour, discriminatoires et par offre écrite. Elles reposent sur l’hypothèque que les offres des propriétaires fonciers refléteront leur ?valeur privée?. Lorsque les propriétaires fonciers ne sont pas familiers avec les processus d’enchères pour la conservation et la prestation de services environnementaux, ils peuvent éprouver de la difficultéà attribuer une valeur à leur offre. Cette valeur peut‐être influencée par d’autres facteurs, tels que la crainte de la ?malédiction du vainqueur ?, le désir de réaliser une rente économique, les primes de risque et les facteurs d’incertitude. Les enchères scellées à un tour peuvent aggraver le manque d’information et les facteurs d’incertitude étant donné que les enchérisseurs disposent de peu d’information comparativement aux enchères ascendantes ouvertes traditionnelles. Dans le présent article, nous avons examiné, à l’aide d’expériences sur le terrain et d’enchères pour la conservation, l’efficacité‐coût d’une enchère à tours multiples pour des mesures de gestion de la part de propriétaires fonciers. L’exercice visait à améliorer la gestion des pâturages d’un parcours naturel en Australie, où les propriétaires fonciers ne sont pas familiers avec la prestation de services environnementaux ni avec les enchères pour la conservation. Les résultats autorisent à penser que les enchères à tours multiples pourraient offrir des gains d’efficience, particulièrement durant les premiers tours.     

Valuation on the Frontier: Calibrating Actual and Hypothetical Statements of Value

The lack of robust evidence showing that hypothetical behavior directly maps into real actions remains a major concern for proponents of stated preference nonmarket valuation techniques. This article explores a new statistical approach to link actual and hypothetical statements. Using willingness-to-pay field data on individual bids from sealed-bid auctions for a $350 baseball card, our results are quite promising. Estimating a stochastic frontier regression model that makes use of data that any contingent valuation survey would obtain, we derive a bid function that is not statistically different from the bid function obtained from subjects in an actual auction. If other data can be calibrated similarly, this method holds significant promise since an appropriate calibration scheme, ex ante or ex post , can be invaluable to the policy maker that desires more accurate estimates of use and nonuse values for nonmarket goods and services.     

The Impact of E‐Auctions in Adjusting Procurement Strategies for Specialty Coffee

Supply relationships and e‐auctions are complementary procurement forms that specialty coffee roasters can utilize when designing a procurement strategy. We model the roaster's optimal choice of procurement strategies using an extended newsvendor model. By comparing the optimal strategies in a benchmark case solely based on relationships to a case in which auctions can be utilized, we derive the impact of e‐auctions on the procurement quantity and profit under conditions of demand uncertainty. The two‐stage model predicts that the adjustment of procurement using e‐auctions is most beneficial under market circumstances of high demand variability and small firm size. We use industry data to illustrate the market conditions for specialty coffee and discuss the potential impact of e‐auctions on procurement strategies for specialty coffee based on our model. The theoretical propositions in conjunction with current industry data suggest that e‐auctions have great potential to become an integral part of and shape roasters’ procurement approaches in the specialty coffee market. Les ententes avec les fournisseurs et les enchèress électroniques sont des moyens complémentaires que les torréfacteurs de café de spécialité peuvent utiliser pour élaborer une stratégie d’approvisionnement. Nous avons modélisé les stratégies d’approvisionnement optimales des torréfacteurs à l’aide d’un modèle étendu du marchand de journaux. En comparant les stratégies optimales d’un cas fondé uniquement sur les relations avec les fournisseurs avec celles d’un cas où des enchères ont pu être utilisées, nous avons calculé l’impact des enchères électroniques sur la quantité des approvisionnements et les profits en présence d’incertitude de la demande. Selon le modèle à deux étapes, l’ajustement des approvisionnements à l’aide des enchères électroniques est plus bénéfique lorsque la variabilité de la demande est forte et la taille de l’entreprise est petite. Nous avons utilisé des données de l’industrie pour illustrer les conditions du marché du café de spécialité et avons examiné, à l’aide de notre modèle, l’impact potentiel des enchères électroniques sur les stratégies d’approvisionnement de café de spécialité. Les propositions théoriques combinées avec les données de l’industrie actuelles autorisent à penser que les enchères électroniques pourraient très bien modifier l’approche d’approvisionnement des torréfacteurs sur le marché du café de spécialité et en devenir partie intégrante.     

Extrapolating experimental-auction results using a stated choice survey

During the last decade, experimental auctions and stated choice(SC) surveys have been widely used to study food demand. Thesemethods have complementary strengths and weaknesses. Experimentalauctions are limited by the availability of products and theuse of locally recruited participants, whereas SC surveys lackreal economic incentives. We use an SC survey to extrapolatethe results of an experimental auction to hypothetical productswith non-existing attribute combinations and to a representativesample of Norwegian consumers. The method is illustrated usingNorwegian consumers' preferences for country-of-origin and hormonestatus for beef.