Additionality and Asymmetric Information in Environmental Markets: Evidence from Conservation Auctions
Abstract
Mechanisms that aim to reduce environmental degradation at low cost can be undermined when participants' conservation actions are not marginal to the incentive—or “additional”—as the lowest-cost participants may not be the highest social value. We investigate this challenge in the Conservation Reserve Program's auction mechanism for ecosystem services, linking bids to satellite-derived land use. Three-quarters of marginal auction winners are not additional. The heterogeneity in counterfactual land use introduces adverse selection. We develop a model of bidding and additionality to quantify welfare implications. Alternative auctions increase efficiency by using scoring rules that incorporate expected land use impacts. (JEL D44, D82, Q24, Q57, R14)
Fields of Study & Subjects
Auction Theory and Applications
Economic and Environmental Valuation
Climate Change Policy and Economics
Publication details
- Journal / source
- American Economic Review
- Publisher
- American Economic Association
- Volume
- 116
- Issue
- 8
- Pages
- 2765–2805
- Publication date
- 31 July 2026
- Language
- EN