Evaluating the potential contribution of contract auctions to Agri-Environmental Policy efficiency: A simulation model for Emilia-Romagna (Italy)

Auctions are a potentially suitable policy tool for increasing the efficiency of Agri- Environmental Schemes (AES) through an improved allocation of contracts. In theory, through the auction mechanism, farmers have incentives to reveal their compliance costs, helping to reduce information rents and increase policy cost-effectiveness. The aim of this paper is to simulate the potential contribution of auction mechanisms to the efficiency of AES in Emilia-Romagna (Italy). The results show advantages for auctions compared with traditional flat rate payments based on average compliance costs. However, their performance is worse than flat payments based on marginal compliance costs.