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Green auctions: A biodiversity study of mechanism design with externalities

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  • Espinola-Arredondo, Ana

Abstract

This paper uses a mechanism design approach to study the biodiversity improvement in a territory, where the government is the principal and the landholders are the agents. In particular, I analyze an optimal mechanism that considers multidimensional bid which includes both the biodiversity improvement of the project and its cost. Additionally, this mechanism incorporates the externality (either positive or negative) that a biodiversity project causes in the surrounding agents who decided not to participate. Specifically, I assume that externalities enter in the cost function of the nonparticipating landholders. I show that, in the case of negative externalities, the government will implement a transfer function which is decreasing in the landholder's efficiency level. On the other hand, in the case of a positive externality, paradoxically the government may be interested in the nonparticipation of the most efficient landholders.

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  • Espinola-Arredondo, Ana, 2008. "Green auctions: A biodiversity study of mechanism design with externalities," Ecological Economics, Elsevier, vol. 67(2), pages 175-183, September.
    • Handle: RePEc:eee:ecolec:v:67:y:2008:i:2:p:175-183
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    References listed on IDEAS

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    1. Stoneham, Gary & Chaudhri, Vivek & Ha, Arthur & Strappazzon, Loris, 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, vol. 47(4), pages 1-24.
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    8. Uwe Latacz‐Lohmann & Carel P. C. M. Van der Hamsvoort, 1998. "Auctions as a Means of Creating a Market for Public Goods from Agriculture," Journal of Agricultural Economics, Wiley Blackwell, vol. 49(3), pages 334-345, September.
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    Cited by:

    1. Frédéric Barraquand & Vincent Martinet, 2009. "Agricultural land-use and biological conservation," Working Papers hal-04140877, HAL.
    2. Moretto, Michele & Di Corato, Luca & Dosi, Cesare, 2014. "Bidding for Conservation Contracts," Climate Change and Sustainable Development 178245, Fondazione Eni Enrico Mattei (FEEM).
    3. Matthies, Brent D. & Kalliokoski, Tuomo & Ekholm, Tommi & Hoen, Hans Fredrik & Valsta, Lauri T., 2015. "Risk, reward, and payments for ecosystem services: A portfolio approach to ecosystem services and forestland investment," Ecosystem Services, Elsevier, vol. 16(C), pages 1-12.
    4. Juutinen, Artti & Mäntymaa, Erkki & Ollikainen, Markku, 2013. "Landowners’ conservation motives and the size of information rents in environmental bidding systems," Journal of Forest Economics, Elsevier, vol. 19(2), pages 128-148.
    5. Di Corato, Luca & Dosi, Cesare & Moretto, Michele, 2015. "Multidimensional auctions for long-term procurement contracts under the threat of early exit: the case of conservation auctions," Working Paper Series 2015:6, Swedish University of Agricultural Sciences, Department Economics.

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