Competition-Based Environmental Policy: An Analysis of Farmland Preservation in Maryland

This paper studies bidder behavior in an innovative program in which farmers compete to sell their development rights to the State. We derive a reduced form bidding model that includes both private value and common value components. This model allows us to estimate the role of bidder competition, the winner’s curse correction, and the underlying distribution of private values. We find that competition reducelers adjust for a possible winner’s curse by increasing their bids by roughly 10 percent over their reservation values. Using the inferred reservation values, we compare this program to an alternative take-it-or-leave-it offer. We find that a take-it-or-leave-it offer of 50 percent of development values would have preserved more farmland for an equivalent budget than the current reverse auction setup.


Issue Date:
2007
Publication Type:
Working or Discussion Paper
PURL Identifier:
http://purl.umn.edu/7340
Total Pages:
51
Series Statement:
Working Paper
07-10




 Record created 2017-04-01, last modified 2017-08-23

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