Options for Improving Conservation Programs: Insights from Auction Theory and Economic Experiments

By Hellerstein, Daniel; Higgins, Nathaniel et al. | Amber Waves, February 2015 | Go to article overview

Options for Improving Conservation Programs: Insights from Auction Theory and Economic Experiments


Hellerstein, Daniel, Higgins, Nathaniel, Roberts, Michael J., Amber Waves


For the last several decades, USDA has spent billions of dollars on conservation programs, and the Agricultural Act of 2014 authorizes spending about $5.5 billion/year through 2018, spread overa variety of programs. All of these-such as the Conservation Reserve Program (CRP) and the Environmental Quality Incentives Program (EQIP)-share an important feature: they are voluntary. However, program budgets, or program acreage caps, are often not large enough to enroll everyone interested in participating.

These USDA conservation programs use an "enrollment mechanism" to allocate resources among would-be participants: a process for eliciting offers, ranking offers, and choosing which offers to accept. The details of an enrollment mechanism, which are often the result of a mix of legislation and administrative decisions, can be critical to the ability of the program to meet its goals. They can help determine which farmland parcels are ultimately enrolled, which farmers and landowners gain financially from the program and how much they gain, how much the Government spends, and what environmental benefits are associated with the program.

While there are a number of options available for allocating program funds, auctions can be a core component of an enrollment mechanism. In particular, conservation programs can use reverse auctions-auctions where there is one buyer (for example, the USDA) and many possible sellers (for example, rural landowners). With clear rules regarding participation, the bidding process, and selection criteria, auctions can facilitate simple and transparent program enrollment. When combined with publicly available information about potential participants-such as county-level measures of farmland rental rates and soil productivity-a carefully designed auction can reduce program costs or encourage more environmentally beneficent choices. But there are other cases where auctions may not be very useful.

When designing a conservation auction, details matter. How offers are elicited, what criteria are used for ranking and then selecting offers, what information USDA shares with farmers, and other factors all affect auction performance. For example, promoting the opportunity to participate in a program and disseminating detailed information about how the auction works can enhance competition by lowering barriers to entry for sellers who have little experience with conservation auctions. Conversely, if auction rules are unclear, or if they are overly complex, potential sellers may have difficulty determining the best offers, which can discourage participation. Ideally, the auction format clearly encourages behavior that public policy wants to encourage.

The Conservation Reserve Program's use of auctions

The Conservation Reserve Program-now 29 years old-is USDA's largest conservation program, created to take environmentally sensitive land out of production by paying farmers and landowners to grow grass, trees, and other conservation cover on eligible cropland. For almost 20 years, CRP has used a reverse-auction mechanism to select offers from farmers and rural landowners interested in participating in the program. As of October 2014, over 75 percent of CRP's 24.1 million enrolled acres were selected through a "general signup" mechanism that has two distinguishing features. First, each offered parcel is scored using an Environmental Benefits Index (EBI) that reflects the both the environmental value from retiring a parcel and installing a proposed cover practice (such as mixtures of native grasses or trees), and the requested program payment (the rental rate). Second, the requested rental rate cannot exceed a pa reel-specific maximum that is calculated using information on the parcel's agricultural value. USDA uses a measure known as the Soil Rental Rate (the SRR) as an estimate of a parcel's agricultural value.

The SRR is calculated using county average rental rates for non-irrigated cropland, together with a measure of a parcel's soil productivity. …

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