Buybacks with costly participation |
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| Institution: | 1. Department of Agricultural and Resource Economics, University of Maryland, 2200 Symons Hall, College Park, MD 20742 USA;2. NOAA Fisheries, Northeast Fisheries Science Center, 166 Water Street, MB 19, Woods Hole, MA 02543, USA;3. NOAA Fisheries, 1315 East West Highway, Silver Spring, MD 20910, USA;1. Department of Economics, Michigan State University, United States;2. Lamont-Doherty Earth Observatory, Columbia University, United States;3. World Bank, United States;4. Department of Energy and Environment, TERI University, India;1. Department of Economics, Stockholm University, 106 91 Stockholm, Sweden;2. Program for Evolutionary Dynamics, Harvard University, United States;1. School of Economics, The University of Queensland, Brisbane 4072, Australia;2. Institute for Environmental Decisions, ETH Zürich 8092, Switzerland;1. Inter-American Development Bank, Strategy Development Division, 1300 New York Avenue N.W., Washington, DC 20577, United States;2. Inter-American Development Bank, Strategy Development Division, 1300 New York Avenue, NW, Washington, DC 20577, United States |
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| Abstract: | Posted price offers and first price auctions, along with the multi-unit discriminatory auction extension, are two widely used mechanisms for allocating conservation contracts. The choice between the two typically hinges on the trade-off between the posted price's simplicity and the potential revenue gains of the auction. In this paper we introduce a novel mechanism that attempts to bridge the gap between the performance of posted price offers and auctions. A two-price and lottery schedule combines the simplicity of the former with some of the flexibility of the latter. Using a model that incorporates agents' cognitive and information costs of bidding, we analyze how the ranking of allocative efficiency and cost-effectiveness between the mechanisms varies as the wedge of participation costs increases. When the number of bidders is endogenously determined by participation costs, bid shading associated with a lack of competition in the auction compromises its cost-effectiveness vis-à-vis the posted price and the lottery schedule. We use data from three recent buybacks for fishing licenses conducted in Maryland to calibrate our model and identify conditions under which the two-price schedule outperforms the other mechanisms. |
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| Keywords: | Auction Buyback Fishery Lottery Participation |
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