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Conservation procurement auctions with bidirectional externalities

Pak-Sing Choi (), Ana Espinola-Arredondo () and Felix Munoz-Garcia ()

Journal of Environmental Economics and Management, 2018, vol. 92, issue C, 559-579

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.

Keywords: Mechanism design; Bidirectional externalities; Conservation procurement auction (search for similar items in EconPapers)
JEL-codes: D44 D62 D82 Q15 Q51 (search for similar items in EconPapers)
Date: 2018
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Journal of Environmental Economics and Management is currently edited by M.A. Cole, A. Lange, D.J. Phaneuf, D. Popp, M.J. Roberts, M.D. Smith, C. Timmins, Q. Weninger and A.J. Yates

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