Payments for environmental services (PES) is an effective way to resolve the environmental problems. And one of key issues is the compensation standard (conservation payment) for the environmental services (ES) offers, and this can make sure the PES program be implemented as long as possibly. Auctions can consider the cost-benefits between the landowners and the ES buyers at the same time. However, the benchmark auction model is based on the basic assumptions, one of which is that the bidders are risk-neutral. In fact, farmers are generally considered to be risk-averse. The reason behind this is that the conservation payment, as a nonstochastic income component, decreases farmers' income uncertainty, which induces them to marginally lower their bids (as compared to the risk-neutral bidder) to increase the probability of acceptance. Of course, occasionally, they are possible to be risk-appetite. A model of optimal bidding for conservation contracts was developed and applied to a conservation program abroad. To use this optimal bidding model and consider the different risk attitudes, we analyzed the risk attitudes and risk premiums in different uncertainties of the reserve price of 104 informants in Sunan County China. The results show that when the different risk premiums is 0, or more than 0, or less than 0, the bidder is risk-neutral, risk-adverse, or risk-appetite, separately. In this investigation, as the opportunity cost grows, the risk attitudes of the bidders are from risk-adverse, to risk-neutral, and to risk-appetite at last. When the opportunity costs are more that some value, the risk attitudes are bound to risk-adverse from risk-appetite. As the extent of uncertainty grows, the different risk premium becomes more and more. Moreover, when the bidders are risk-neutral, to open the reserve price is an efficient mechanism; and when they are risk-adverse, it's best not to do that.
DENG Xiao-hong
, XU Zhong-min. , {{custom_author.name_en}}.
Bidders' different risk attitudes in auction of payment for environmental services —— A case study of Sunan County. Systems Engineering - Theory & Practice, 2012, 32(11): 2411-2418 https://doi.org/10.12011/1000-6788(2012)11-2411
[1] 徐中民,钟方雷,赵雪雁,等.生态补偿研究进展综述[J].财会研究, 2008, 23: 67-72.Xu Z M, Zhong F L, Zhao X Y, et al. Payments for ecosystem services: An overview[J]. Research of Financial & Accounting, 2008, 23: 67-72. [2] Niesten E, Rice R. Sustainable forest management and conservation incentive agreements[J]. International Forestry Review, 2004, 6(1): 56-60. [3] Ferraro P J. Asymmetric information and contract design for payments for environmental services[J]. Ecological Economics, 2008, 65(4): 810-821. [4] Latacz-Lohmann U, Van der Hamsvoort C. Auctioning conservation contracts: A theoretical analysis and an application[J]. American Journal of Agricultural Economics, 1997, 79(2): 407-418. [5] Rolfe J, Windle J. Using auction mechanisms to reveal costs for water quality improvements in Great Barrier Reef Catchments in Australia[J]. Agricultural Water Management, 2011, 98(4): 493-501. [6] Stoneham G, Chaudhri V, Ha A, et al. Auctions for conservation contracts: An empirical examination of Victoria's Bush Tender Trial[J]. Australian Journal of Agricultural and Resource Economics, 2003, 47(4): 477-500. [7] Klemperer P. Auctions: Theory and Practice[M]. Princeton, NJ: Princeton University Press, 2004. [8] Lynne G D, Shonkwiler J S, Rola L R. Attitudes and farmer conservation behavior[J]. American Journal of Agricultural Economics, 1988, 70(1): 12-19. [9] Krishna V. Auction Theory [M]. Elsevier Press, 2009. [10] Vickery W. Counter speculation, auctions and competitive sealed tenders[J]. The Journal of Finance, 1961, 16(1): 8-37. [11] Riley J G, Samuelson W F. Optimal Auctions[J]. The American Economic Review, 1981, 71(3): 381-392. [12] Klemperer P.Auction theory: A guide to the literature[J]. Journal of Economic Surveys, 1999, 13(3): 227-286.