Investigating the performance of market-based instruments for resource conservation: the contribution of agent-based modelling

Auctions are increasingly being considered as a mechanism for allocating conservationcontracts to private landowners. This interest is based on the widely held belief thatcompetitive bidding helps minimize information rents. This study constructs an agent-basedmodel to evaluate the long term performance of conservation auctions undersettings where bidders are allowed to learn from previous outcomes. The results clearlyindicate that the efficiency benefits of one-shot auctions are quickly eroded underdynamic settings. Furthermore, the auction mechanism is found to be inferior to fixedpayment schemes except when the latter involve the use of high reserve prices.