Additionality and Asymmetric Information in Environmental Markets: Evidence from Conservation Auctions

Karl M. Aspelund and Anna Russo

No 361138, 2025 AAEA & WAEA Joint Annual Meeting, July 27-29, 2025, Denver, CO from Agricultural and Applied Economics Association

Abstract: Market mechanisms aim to reduce environmental degradation at low cost, but they are undermined when participants’ conservation actions are not marginal to the incentive — or “additional” —as the lowest-cost participants may not be the highest social value. We investigate this challenge in the Conservation Reserve Program’s auction mechanism for ecosystem services, linking bids to satellite-derived land use. Three-quarters of marginal auction winners are not additional. The heterogeneity in counterfactual land use introduces adverse selection. We develop a model of bidding and additionality to quantify welfare implications. Alternative auctions increase efficiency by using scoring rules that incorporate expected land use impacts.

Keywords: Agricultural; and; Food; Policy (search for similar items in EconPapers)
Pages: 83
Date: 2025
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ags:aaea25:361138

DOI: 10.22004/ag.econ.361138

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