Hostname: page-component-586b7cd67f-t8hqh Total loading time: 0 Render date: 2024-11-22T05:57:43.009Z Has data issue: false hasContentIssue false
  • English
  • Français

The Effective Use of Limited Information: Do Bid Maximums Reduce Procurement Cost in Asymmetric Auctions?

Published online by Cambridge University Press:  15 September 2016

Daniel Hellerstein  and
Nathaniel Higgins
Daniel Hellerstein
Affiliation:
Economic Research Service of the U.S. Department of Agriculture in Washington, D.C.
Nathaniel Higgins
Affiliation:
Economic Research Service of the U.S. Department of Agriculture in Washington, D.C.
Get access

Abstract

Conservation programs faced with limited budgets often use a competitive enrollment mechanism. Goals of enrollment might include minimizing program expenditures, encouraging broad participation, and inducing adoption of enhanced environmental practices. We use experimental methods to evaluate an auction mechanism that incorporates bid maximums and quality adjustments. We examine this mechanism's performance characteristics when opportunity costs are heterogeneous across potential participants, and when costs are only approximately known by the purchaser. We find that overly stringent maximums can increase overall expenditures, and that when quality of offers is important, substantial increases in offer maximums can yield a better quality-adjusted result.

Keywords

conservation auctionsConservation Reserve ProgramCRPbid capsexperimental economics
Type
Contributed Papers
Information
Agricultural and Resource Economics Review , Volume 39 , Issue 2 , April 2010 , pp. 288 - 304
Copyright
Copyright © 2010 Northeastern Agricultural and Resource Economics Association 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Bulow, J., and Roberts, J. 1989. “The Simple Economics of Optimal Auctions.” Journal of Political Economy 97(5): 1060–1090.Google Scholar
Cason, T.N., and Gangadharan, L. 2004. “Auction Design for Voluntary Conservation Programs.” American Journal of Agricultural Economics 86(5): 1211–1217.Google Scholar
Horowitz, J.K., Lynch, L., and Stocking, A. 2009. “Competition-Based Environmental Policy: An Analysis of Farmland Preservation in Maryland.” Land Economics 85: 555–575.Google Scholar
Johansson, R. 2006. “Conservation Program Design: Participant Bidding Enhances Cost Effectiveness.” Economic Brief No. 3, Economic Research Service, U.S. Department of Agriculture, Washington, D.C. Available at http://www.ers.usda.gov/Publications/EB3/ (accessed March 19, 2010).Google Scholar
Kirwan, B.E., Lubowski, R.N., and Roberts, M.J. 2005. “How Cost-Effective Are Land Retirement Auctions? Estimating the Difference between Payments and Willingness to Accept in the Conservation Reserve Program.” American Journal of Agricultural Economics 87(5): 1239–1247.Google Scholar
Latacz-Lohmann, U., and Van der Hamsvoort, C. 1997. “Auctioning Conservation Contracts: A Theoretical Analysis and an Application.” American Journal of Agricultural Economics 79(2): 407–418.Google Scholar
Myerson, R.B. 1981. “Optimal Auction Design.” Mathematics of Operations Research 6(1): 58–73.Google Scholar
Reichelderfer, K., and Boggess, W.G. 1988. “Government Decision Making and Program Performance: The Case of the Conservation Reserve Program.” American Journal of Agricultural Economics 70(1): 1–11.Google Scholar
Schilizzi, S., and Latacz-Lohmann, U. 2007. “Assessing the Performance of Conservation Auctions: An Experimental Study.” Land Economics 83(4): 497–515.Google Scholar
Shoemaker, R. 1989. “Agricultural Land Values and Rents Under the Conservation Reserve Program.” Land Economics 65(2): 131–137.CrossRefGoogle Scholar
Smith, V.L. 1976. “Experimental Economics: Induced Value Theory.” American Economic Review 66(2): 274–279.Google Scholar
Vukina, T., Zheng, X., Marra, M., and Levy, A. 2008. “Do Farmers Value the Environment? Evidence from a Conservation Reserve Program Auction.” International Journal of Industrial Organization 26(6): 1323–1332.Google Scholar
Wald, A. 1947. Sequential Analysis. New York: Dover Publications, Inc.Google Scholar