American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Additionality and Asymmetric Information in Environmental Markets: Evidence from Conservation Auctions
American Economic Review
(pp. 2765–2805)
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.Citation
Aspelund, Karl M., and Anna Russo. 2026. "Additionality and Asymmetric Information in Environmental Markets: Evidence from Conservation Auctions." American Economic Review 116 (8): 2765–2805. DOI: 10.1257/aer.20250295Additional Materials
JEL Classification
- D44 Auctions
- D82 Asymmetric and Private Information; Mechanism Design
- Q24 Renewable Resources and Conservation: Land
- Q57 Ecological Economics: Ecosystem Services; Biodiversity Conservation; Bioeconomics; Industrial Ecology
- R14 Land Use Patterns