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

Rent-seeking behavior 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 behavior. The PPRA includes a public component in which 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 that are 12.57%-58.17% smaller than in alternate reverse discriminative auctions, with the exact difference dependent on the compared mechanism and auction parameters.

Automated summary

Rent-seeking behavior in payment for environmental services auctions can be reduced by using a new auction mechanism called the provision point reverse auction (PPRA). Laboratory experiments show that PPRA yields average offers that are 12.57%-58.17% smaller than in alternate reverse discriminative auctions.