Options for Improving Conservation Programs : Insights from Auction Theory and Economic Experiments

The U.S. Department of Agriculture spends over $5 billion per year on conservation programs, mostly on voluntary programs that give financial assistance to farmers and landowners to provide environmental services (such as implementing nutrient management programs or planting native grasses). Since most programs cannot fund all interested parties, program managers must use some mechanism to select applicants. One option is to elicit offers through an auction. This report addresses the use of auctions in conservation programs. It considers how information in the hands of Government officials and rural landowners affects the auction's performance, and how auction design can reduce Government expenditures or encourage landowners to provide greater environmental services. Results of laboratory experiments are discussed, highlighting shortcomings of common features of conservation program auctions (such as limits on the rent landowners may request), as well as how alternative auction designs can improve performance