The influence of contract length on the performance of sequential conservation auctions

Abstract

The present article explores the extent to which the performance of a sequential conservation auction can be improved by changing the duration of conservation contracts. Optimal bidding in the context of a sequential conservation auction is modeled as a dynamic optimization problem and solved through backward induction. We show that a longer duration of conservation contracts increases not only the privately optimal bid of a risk-neutral bidder but also the probability that a land plot is included in a conservation program. Whether a longer duration of conservation contracts increases or decreases the budgetary cost effectiveness and economic efficiency of a sequential auction depends on the scale of variation for the cutoff bid.