The Agglomeration Vickrey Auction for the promotion of spatially contiguous habitat management: Theoretical foundations and numerical illustrations

There is much interest among economists and policy makers in the use of reverse auctions to purchase habitat conservation on private lands as a mechanism for minimizing public expenditures to achieve desired conservation outcomes. Examples are the Conservation Reserve Program (US) and Environmental Stewardship Scheme (UK). An important limitation of these auctions as implemented to date is that there is no explicit consideration of the spatial pattern of participation in the evaluation of bids. In this study we present the structure of a simple auction – the Agglomeration Vickrey Auction that implements a Vickrey-Clarke-Groves mechanism. The auction is designed to attain conservation goals through specific spatial patterns of land management while minimizing the total budgetary cost. We present the theoretical structure of the AVA and provide simple numerical examples to illustrate the effectiveness of the mechanism. We conclude with a section documenting the experiments that are to be conducted as a part of the future research on this study.