Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/102020 
Year of Publication: 
2014
Series/Report no.: 
Nota di Lavoro No. 65.2014
Publisher: 
Fondazione Eni Enrico Mattei (FEEM), Milano
Abstract: 
Contracts providing payments for not developing natural areas, or for removing cropland from production, generally require long-term commitments. Landowners, however, can decide to prematurely terminate the contract when the opportunity cost of complying with conservation requirements increases. The paper investigates how this can affect bidding behavior in multi-dimensional auctions, where agents bid on both the conservation plan and the required payment, when contracts do not provide for sufficiently strong incentives against early exit. Integrating the literature on scoring auctions with that which views non-enforcement of contract terms as a source of real-options, the paper offers the following contributions. First, it is shown that bidders' expected payoff is higher when facing enforceable project deadlines. Second, that failure to account for the risk of opportunistic behavior could lead to the choice of sellers who will not provide the contracting agency with the highest potential payoff. Finally, we examine the role that eligibility rules and the degree of competition can play in avoiding such potential bias in contract allocation.
Subjects: 
Conservation Contracts
Scoring Auctions
Non-enforceable Contract Duration
Real Options
JEL: 
C61
D44
D86
Q24
Q28
Document Type: 
Working Paper

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