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European Review of Agricultural Economics 2008 35(2):143-165; doi:10.1093/erae/jbn024
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© Oxford University Press and Foundation for the European Review of Agricultural Economics 2008; all rights reserved. For permissions, please email journals.permissions@oxfordjournals.org

Scoring two-dimensional bids: how cost-effective are agri-environmental auctions?

Thilo W. Glebe

Technische Universität München, Germany

Corresponding author: Thilo Glebe, Technische Universität München, TUM Business School, Environmental Economics and Agricultural Policy Group, Alte Akademie 14, 85350 Freising-Weihenstephan, Germany. E-mail: glebe{at}wzw.tum.de

Received March 2007; final version received March 2008

This paper analyses the cost-effectiveness of agri-environmental auctions that solicit two-dimensional bids consisting of conservation activity and compensation payment. Taking a self-selecting contract schedule as a benchmark, an optimally designed auction has the potential to reduce government expenditure significantly. However, the relative cost-effectiveness of a multi-dimensional auction is determined by the bid scoring system and farmers' expectations of the maximum acceptable bid score. The article elaborates conditions for a bid scoring rule that optimises cost-effectiveness and tests how benefits of an auction approach may be eroded if farmers' expectations of the maximum acceptable bid score diverge from the level consistent with this optimum.

Keywords: agri-environmental policy, auctions, multi-dimensional bid scoring conservation contracts, cost-effectiveness, information asymmetry, mechanism design

JEL classification: D82, D86, Q18, Q58


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