Conservation Auctions and Compliance: Theory and Evidence from Laboratory Experiments
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A number of agri-environmental conservation policies are faced with the problem of imperfect monitoring. This provides farmers an incentive for noncompliance, in which they receive subsidies without implementing the conservation scheme. In this article, bidding behaviors and auction performances are compared for discriminatory-price (DP) and uniform-price (UP) auction in an imperfect monitoring environment. Our laboratory experiments show that although DP has certain advantages in terms of reducing policy costs, UP results in a superior overall performance when compliance behavior is taken into account.