Investigating the performance of market-based instruments for resource conservation: the contribution of agent-based modelling
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Auctions are increasingly being considered as a mechanism for allocating conservation
contracts to private landowners. This interest is based on the widely held belief that
competitive bidding helps minimize information rents. This study constructs an agent-based
model to evaluate the long term performance of conservation auctions under
settings where bidders are allowed to learn from previous outcomes. The results clearly
indicate that the efficiency benefits of one-shot auctions are quickly eroded under
dynamic settings. Furthermore, the auction mechanism is found to be inferior to fixed
payment schemes except when the latter involve the use of high reserve prices.