Auctions in an outcome-based payment scheme to reward ecological services in agriculture – Conception, implementation and results



According to the diverse theoretical understandings and definitions of transaction costs, it
is not surprising, that also for the empirical measurement of farmer’s transaction costs of
agri-environmental programs, no unique method has been available yet. So, the main
questions in the beginning of this research are “What are the relevant transaction costs?”
and of course “How to measure the transaction costs?”.

Thus in this case the farmer’s transaction costs are focused and will be accomplished by
using questionnaires to build up an extensive data pool, which finally will be evaluated in a
transaction costs study. At that time the transaction costs for making an offer in the first
auction are focused. In the course of the research all farmer’s transaction costs involved in
taking part in this outcome-based payment scheme - like e.g. the monetary valuated time
needed to gather information about the auction, to engage an advice, to fill out forms and
to calculate prices will be measured.

3. Auctions

Auctions can be defined as “[...] a market institution with an explicit set of rules
determining resource allocation and prices on the basis of bids from market participants”
(McAfee and McMillian, 1987). The effectiveness of auctions as an allocation mechanisms
is theoretical evident and has been well documented in the past. However the use of
auctions has a longstanding tradition in government procurement contracting, but has been
limited to trade commodities as for example public works, electricity and emission rights.
Using auctions to conserve natural resources is a relative new concept. Also in general the
exploration and the use of auctions to reward farmers as a part of agri-environmental
programs is increasing, but there is still an urgent need for research, before the
implementation of auctions especially into the CAP.

Theoretically the potential benefit of auctions in allocating contracts for the provision of
non-market or public goods in the countryside is analysed by the auction theory. The two
main reasons why auctions are of interests in this case are the following: First, the traded
ecological goods are public-type and nonmarket goods which have no standard value and
in some kind of way a public demand and valuation is needed. The second reason to be
mentioned is the presence of asymmetric informations between the farmers and the
administration (Latacz-Lohmann and Van der Hamsvoort, 1997). Farmers know better how



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