IDEAS home Printed from https://ideas.repec.org/p/ags/aare11/101406.html
   My bibliography  Save this paper

Empirical methods for determining a reserve price in conservation auctions

Author

Listed:
  • Eigenraam, Mark
  • Chua, Joselito J.
  • Edwards, Claire

Abstract

Conservation auctions are increasingly being used to procure public environmental goods on private land. In the absence of demand-side price information, the majority of conservation auctions in Australia have been designed without a reserve price. In these instances bids have been accepted in order of cost-effectiveness until the budget constraint binds. It is widely recognised that in situations where auctions are run repeatedly a reserve price strategy could allow for a more efficient allocation of funds across multiple rounds, both spatially and temporally. This paper provides a brief overview of methods for determining a reserve price for application in conservation auctions. It is concluded that information deficiencies and the high transaction costs involved in the application of these methods to conservation auctions often render them unsuitable for application to real-world auctions. This paper presents an empirical approach to determining a reserve price using data obtained during an auction - the supply curve. The approach stems from the C4.5 algorithm, developed in the field of data mining to construct decision trees from training data using the concept of information entropy. The algorithm establishes a reserve price by determining the cut-off price that results in the ”best fit” of two normal distributions to the frequency distribution of bid-price per unit environmental benefit. Empirical data from conservation auctions in Victoria is used to demonstrate the algorithm and compare auction results obtained using the algorithm and traditional ”budget” methods. The paper presents a discussion on the situations where the algorithm could be appropriately used, and advantages and limitations of the approach are identified. The paper concludes that the use of the algorithm can result in efficiency gains over the traditional budget method in situations where alternative reserve price strategies are impractical.

Suggested Citation

  • Eigenraam, Mark & Chua, Joselito J. & Edwards, Claire, 2011. "Empirical methods for determining a reserve price in conservation auctions," 2011 Conference (55th), February 8-11, 2011, Melbourne, Australia 101406, Australian Agricultural and Resource Economics Society.
  • Handle: RePEc:ags:aare11:101406
    DOI: 10.22004/ag.econ.101406
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/101406/files/AARES%20Eigenraam%20et%20al%202011%20-%20Final.pdf
    Download Restriction: no

    File URL: https://libkey.io/10.22004/ag.econ.101406?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Latacz-Lohmann, Uwe & Hodge, Ian D., 2003. "European agri-environmental policy for the 21st century," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 47(01), pages 1-17.
    2. Uwe Latacz-Lohmann & Carel Van der Hamsvoort, 1997. "Auctioning Conservation Contracts: A Theoretical Analysis and an Application," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(2), pages 407-418.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Matteo Olivieri & Maria Andreoli & Daniele Vergamini & Fabio Bartolini, 2021. "Innovative Contract Solutions for the Provision of Agri-Environmental Climatic Public Goods: A Literature Review," Sustainability, MDPI, vol. 13(12), pages 1-22, June.
    2. Connor, Jeffery D. & Ward, John R. & Bryan, Brett, 2008. "Exploring the cost effectiveness of land conservation auctions and payment policies," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 52(3), pages 1-17.
    3. Jeffery D. Connor & John R. Ward & Brett Bryan, 2008. "Exploring the cost effectiveness of land conservation auctions and payment policies ," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 52(3), pages 303-319, September.
    4. Moons, Ellen & Rousseau, Sandra, 2007. "Policy options for afforestation in Flanders," Ecological Economics, Elsevier, vol. 64(1), pages 194-203, October.
    5. Rousseau Sandra & Moons Ellen, "undated". "Auctioning Conservation Contracts: An Application to the Flemish Afforestation Policy," Energy, Transport and Environment Working Papers Series ete0606, KU Leuven, Department of Economics - Research Group Energy, Transport and Environment.
    6. Valle, Haydn & Capon, Timothy & Harris, Michael & Reeson, Andrew, 2012. "Coordination and Strategic Behaviour in Landscape Auctions," 2012 Conference (56th), February 7-10, 2012, Fremantle, Australia 124466, Australian Agricultural and Resource Economics Society.
    7. Frans P. Vries & Nick Hanley, 2016. "Incentive-Based Policy Design for Pollution Control and Biodiversity Conservation: A Review," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 63(4), pages 687-702, April.
    8. Markus Groth, 2005. "Auctions in an outcome-based payment scheme to reward ecological services in agriculture – Conception, implementation and results," ERSA conference papers ersa05p180, European Regional Science Association.
    9. Latacz-Lohmann, U. & Schilizzi, S., 2008. "Quantifying the Benefits of Conservation Auctions: Evidence from an Economic Experiment," Proceedings “Schriften der Gesellschaft für Wirtschafts- und Sozialwissenschaften des Landbaues e.V.”, German Association of Agricultural Economists (GEWISOLA), vol. 43, March.
    10. Pouta, Eija & Myyra, Sami & Hanninen, Harri, 2009. "Heterogeneous farmland owners: two approaches for objective based classification," 2009 Conference, August 16-22, 2009, Beijing, China 50787, International Association of Agricultural Economists.
    11. Cattaneo, Andrea & Lankoski, Jussi E. & Ollikainen, Markku, 2009. "Green auctions versus uniform agri-environmental payments under heterogeneous conditions," 2009 Conference, August 16-22, 2009, Beijing, China 51678, International Association of Agricultural Economists.
    12. Vukina, Tomislav & Zheng, Xiaoyong & Marra, Michele & Levy, Armando, 2008. "Do farmers value the environment? Evidence from a conservation reserve program auction," International Journal of Industrial Organization, Elsevier, vol. 26(6), pages 1323-1332, November.
    13. Banerjee, Simanti & Kwasnica, Anthony M. & Shortle, James S., 2012. "Agglomeration bonus in small and large local networks: A laboratory examination of spatial coordination," Ecological Economics, Elsevier, vol. 84(C), pages 142-152.
    14. Samuel D. Bell & Nadia A. Streletskaya, 2019. "The Random Quantity Mechanism: Laboratory and Field Tests of a Novel Cost-Revealing Procurement Mechanism," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 73(3), pages 899-921, July.
    15. B Kelsey Jack, 2009. "Auctioning Conservation Contracts in Indonesia - Participant Learning in Multiple Trial Rounds," CID Working Papers 35, Center for International Development at Harvard University.
    16. Yano, Yuki & Blandford, David, 2008. "Use of Penalties and Rewards in Agri-Environmental Policy," 82nd Annual Conference, March 31 - April 2, 2008, Royal Agricultural College, Cirencester, UK 36873, Agricultural Economics Society.
    17. Latacz-Lohmann, Uwe & Hodge, Ian D., 2003. "European agri-environmental policy for the 21st century," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 47(01), pages 1-17.
    18. Viaggi, D. & Raggi, M. & Gallerani, V., 2012. "Evaluating the potential contribution of contract auctions to Agri-Environmental Policy efficiency: A simulation model for Emilia-Romagna (Italy)," Agricultural Economics Review, Greek Association of Agricultural Economists, vol. 11(2), pages 1-11.
    19. Feinerman, Eli & Gardebroek, Cornelis, 2005. "Stimulating Organic Farming Via Public Services and an Auction-Based Subsidy," 2005 International Congress, August 23-27, 2005, Copenhagen, Denmark 24723, European Association of Agricultural Economists.
    20. Steven Schilizzi & Uwe Latacz-Lohmann, 2012. "Evaluating Conservation Auctions with Unknown Bidder Costs: The Scottish Fishing Vessel Decommissioning Program," Land Economics, University of Wisconsin Press, vol. 88(4), pages 658-673.

    More about this item

    Keywords

    Land Economics/Use;

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:aare11:101406. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: AgEcon Search (email available below). General contact details of provider: https://edirc.repec.org/data/aaresea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.