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



a participation on agri-environmental programs would affect their production and profits.
So they will calculate based on their individual costs and a price for the trades goods will
emerge. This offers a possibility for a more efficient use of public funds as if the
administration would fix a unique premium, not knowing the farmer’s costs of production.

Practically auctions already are used for the provision of nonmarket goods in the
countryside. Since 1986 the U.S. Department of Agriculture has been awarding land
retirement contracts for the Conservation Reserve Program (CRP) based on a competitive
bidding mechanism. Farmers make offers to obtain CRP cost share assistance, which is
allocated to them based on a so called Environmental Benefit Index. This Environmental
Benefit Index incorporates individual scores on six environmental factors, which are
wildlife, water quality, erosion, enduring benefits, conservation priority areas and air
quality (e.g. Reichelderfer and Boggess, 1988; Plankl, 1999).

In the United Kingdom, embodied in the Conservation Sensitive Stewardship Scheme and
the Nitrate Sensitive Areas Scheme, a fix payment is offered to the landowners for
specified environmental actions. The administration then chooses landowners who offer
the best quality land management plan. In Australia, as another example, auctions are used
in areas such as salinity control, nutrient control and conservation of existing vegetation
where land use change is required to achieve environmental improvement (Stoneham et al.,
2002).

Since the early 1990s also in Germany the postulate to use auctions to reward ecological
services in agriculture became bigger (e.g. Berg et al., 1993; Latacz-Lohmann, 1993;
Plankl, 1998). Actually even the European Commission starts to allow the use of auctions
in the context of the furture agri-environmental policy. In article 37 - agri-environmental
and animal welfare payments - of the “Proposal for a Council Regulation on support for
rural development by the European Agricultural Fund for Rural Development (EAFRD)” it
is mentioned that beneficiaries should be selected on the basis of calls for tender and
criteria of economic efficiency. Also transaction costs find consideration in a way that
payments may also cover transaction costs. This also shows the necessity and relevance of
the research presented in this paper. Next the use of auctions to reward ecological services
embodied in a regional outcome-based payment scheme will be presented.



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