Green auctions with joint environmental benefits

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Title: Green auctions with joint environmental benefits
Author: Cattaneo, Andrea; Lankoski, Jussi; Ollikainen, Markku
Publisher: Helsingin yliopisto, taloustieteen laitos
Date: 2007
Belongs to series: Discussion Papers - 19
ISSN: 1459-9996
Abstract: This paper examines how jointness of environmental benefits and environmental heterogeneity affect the potential benefits of green auctions over flat-rate agri-environmental policies. A sealed bid green auction with two environmental objectives, nutrient runoff reduction and biodiversity provision, is analyzed. The green auction is analyzed analytically and then empirically by using Finnish data. Auctions that screen farmers’ applications according to an environmental index (with and without a cost-saving component) are simulated in the context of two different conservation options. The first option assumes enlarged field edges are located in whichever edge of a parcel, providing only biodiversity benefits, whereas in the second option they are located on the waterfront so as to also reduce nitrogen runoff. Empirical results show that in both cases the green auction with the cost saving outperforms other policies. However, when environmental benefits are not jointly produced by a practice, farmer participation is much more sensitive to how objectives and cost-saving are weighted, leading to unwanted swings in participation.
Subject: green auction
environmental index
agri-environmental programs
multiple objectives

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