Provision Point Reverse Auction: A New Auction Mechanism with Applications for Conservation Contracts

Abstract

Rent-seeking behavior by participants in payment for environmental services auctions reduces the number of affordable contracts and decreases environmental protection. We propose a new auction mechanism, the provision point reverse auction (PPRA), to mitigate this rent-seeking behavior. The PPRA includes a public component where the probability of contract acceptance for one individual is affected by the sum of the other accepted offers. We provide theoretical support for the new mechanism and follow with laboratory experiments. The experiments yield average offers between 12.57% to 58.17% smaller in a PPRA compared to alternate reverse discriminative auctions, with the exact difference dependent on the compared mechanism and auction parameters. Implementing a PPRA to procure environmental or conservation goods may therefore increase the total quantity of these services acquired.