Assessing the performance of auctions for the allocation of conservation contracts: Theoretical and computational approaches

There is a growing interest in using auctions for purchasing public goods from private agents. Auctions are being trialed in Australia and elsewhere to allocate conservation contracts. The expectation is that competitive bidding will reduce information rents and increase cost-effectiveness. This paper examines how auctions would perform under different assumptions regarding the rationality of bidders. A theoretical model requires bidders to be rational and use Nash equilibrium strategies, while an agent-based model assumes boundedly rational bidders learning from experience. The study illustrates the synergies between economic theory and agent-based modelling. Our findings provide a cautionary message regarding the performance of conservation auctions.