Bidding behavior in environmental contract auctions with incomplete monitoring

Eirik Romstad and Frode Alfnes

No 115985, 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland from European Association of Agricultural Economists

Abstract: It is well known from the compliance literature that whenever it costly to monitor agents' compliance to contract terms, compliance is likely to be incomplete. This paper goes one step further by examining the implications of incomplete monitoring on agent's sales offers in auctions for environmental contracts. From a monitoring perspective we show allocation contracts to least cost also produces another gain – that less resources need to be spend on monitoring and enforcement. To get full use of this insight one needs to have auction procedures that provide incentives for truthful revelation of agents' private alternate incomes. Our second result is that the incentives for truthful revelation is lost when monitoring is incomplete unless the expected value of compliance exceeds the expected value of noncompliance. We demonstrate this result theoretically and through an economic experiment using an induced value reverse multi unit auction.

Keywords: Environmental Economics and Policy; Resource/Energy Economics and Policy (search for similar items in EconPapers)
Pages: 12
Date: 2011-09-02
New Economics Papers: this item is included in nep-cta, nep-env and nep-gth
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Persistent link: https://EconPapers.repec.org/RePEc:ags:eaae11:115985

DOI: 10.22004/ag.econ.115985

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