Conservation procurement auctions with bidirectional externalities

Pak Sing Choi, Ana Espínola-Arredondo, Félix Muñoz-García

Research output: Contribution to journalArticlepeer-review

Abstract

This study analyzes a conservation procurement auction with bidirectional externalities, that is, conservation output can affect the costs of individuals dedicated to market production, and vice versa. The procurer does not observe bidders’ efficiency in conservation or market production. Each market failure alone (asymmetric information or the presence of externalities) deviates optimal output away from the first best. Their coexistence, however, rather than producing larger output inefficiencies, can move optimal output closer to the first best when negative conservation externalities are minor. In this setting, the benefit from acquiring information about bidders’ types is small. In contrast, when conservation externalities are substantial, the procurer would have strong incentives to acquire information before designing the auction.

Original languageEnglish
Pages (from-to)559-579
Number of pages21
JournalJournal of Environmental Economics and Management
Volume92
DOIs
StatePublished - Nov 2018

Keywords

  • Bidirectional externalities
  • Conservation procurement auction
  • Mechanism design

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