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Competition-Based Environmental Policy: An Analysis of Farmland Preservation in Maryland

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Author Info
Horowitz, John K.
Lynch, Lori
Stocking, Andrew

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Abstract

This paper studies bidder behavior in an innovative program in which farmers compete to sell their development rights to the State. We derive a reduced form bidding model that includes both private value and common value components. This model allows us to estimate the role of bidder competition, the winner’s curse correction, and the underlying distribution of private values. We find that competition reducelers adjust for a possible winner’s curse by increasing their bids by roughly 10 percent over their reservation values. Using the inferred reservation values, we compare this program to an alternative take-it-or-leave-it offer. We find that a take-it-or-leave-it offer of 50 percent of development values would have preserved more farmland for an equivalent budget than the current reverse auction setup.

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Publisher Info
Paper provided by University of Maryland, Department of Agricultural and Resource Economics in its series Working Papers with number 7340.

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Date of creation: 2007
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Handle: RePEc:ags:umdrwp:7340

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Related research
Keywords: farmland preservation; first-price auctions; interdependent values; winners curse; Environmental Economics and Policy; Land Economics/Use;

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  1. Plantinga, Andrew & Lubowski, Ruben & Stavins, Robert, 2002. "The Effects of Potential Land Development on Agricultural Land Prices," Working Paper Series rwp02-012, Harvard University, John F. Kennedy School of Government. [Downloadable!]
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  2. Paarsch, Harry J., 1992. "Deciding between the common and private value paradigms in empirical models of auctions," Journal of Econometrics, Elsevier, vol. 51(1-2), pages 191-215. [Downloadable!] (restricted)
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  3. Matthews, Steven, 1987. "Comparing Auctions for Risk Averse Buyers: A Buyer's Point of View," Econometrica, Econometric Society, vol. 55(3), pages 633-46, May. [Downloadable!] (restricted)
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  4. Vincent Daniel R., 1995. "Bidding Off the Wall: Why Reserve Prices May Be Kept Secret," Journal of Economic Theory, Elsevier, vol. 65(2), pages 575-584, April. [Downloadable!] (restricted)
  5. Kenneth Hendricks & Harry J. Paarsch, 1995. "A Survey of Recent Empirical Work Concerning Auctions," Canadian Journal of Economics, Canadian Economics Association, vol. 28(2), pages 403-26, May. [Downloadable!] (restricted)
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  6. Harry J. Paarsch & Han Hong, 2006. "An Introduction to the Structural Econometrics of Auction Data," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262162350.
  7. Bulow, Jeremy & Klemperer, Paul, 1996. "Auctions versus Negotiations," American Economic Review, American Economic Association, vol. 86(1), pages 180-94, March. [Downloadable!] (restricted)
  8. Philip A. Haile & Han Hong & Matthew Shum, 2004. "Nonparametric Tests for Common Values in First-Price Sealed-Bid Auctions," Working Papers 2004.149, Fondazione Eni Enrico Mattei. [Downloadable!]
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  9. Hong, Han & Shum, Matthew, 2002. "Increasing Competition and the Winner's Curse: Evidence from Procurement," Review of Economic Studies, Blackwell Publishing, vol. 69(4), pages 871-98, October.
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  10. Susan Athey & Philip A. Haile, 2002. "Identification of Standard Auction Models," Econometrica, Econometric Society, vol. 70(6), pages 2107-2140, November. [Downloadable!] (restricted)
  11. Gary Stoneham & Vivek Chaudhri & Arthur Ha & Loris Strappazzon, 2003. "Auctions for conservation contracts: an empirical examination of Victoria's BushTender trial," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society and Blackwell Publishing Asia Pty Ltd., vol. 47(4), pages 477-500, December. [Downloadable!] (restricted)
  12. Gordy, Michael B, 1998. "Computationally Convenient Distributional Assumptions for Common-Value Auctions," Computational Economics, Springer, vol. 12(1), pages 61-78, August. [Downloadable!]
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  13. Matthew Shum, 2000. "Nonparametric Tests for Common Values," Econometric Society World Congress 2000 Contributed Papers 1598, Econometric Society. [Downloadable!]
  14. repec:att:wimass:1920013 is not listed on IDEAS
  15. Matthew Shum, 1998. "Structural Estimation Of Auction Models," Working Papers mshum-98-01, University of Toronto, Department of Economics. [Downloadable!]
  16. Milgrom, Paul R & Weber, Robert J, 1982. "A Theory of Auctions and Competitive Bidding," Econometrica, Econometric Society, vol. 50(5), pages 1089-1122, September. [Downloadable!] (restricted)
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