The influence of a conservation insurance mechanism on optimal bidding in risky conservation auctions
Conservation auctions or tenders (CTs) are gaining popularity globally due to their ability to generate efficiency gains with limited public funding. However, the existence of various types of uncertainties, in particular, the cost of delivering environmental goods (own-cost uncertainties), can unde...
| Main Authors: | , , |
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| Format: | Conference Paper |
| Published: |
2018
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| Subjects: | |
| Online Access: | http://fleximeets.com/wcere2018/?p=programme http://hdl.handle.net/20.500.11937/80099 |
| _version_ | 1848764161591345152 |
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| author | Olita, Toto Schilizzi, Steven Iftekhar, Sayed |
| author_facet | Olita, Toto Schilizzi, Steven Iftekhar, Sayed |
| author_sort | Olita, Toto |
| building | Curtin Institutional Repository |
| collection | Online Access |
| description | Conservation auctions or tenders (CTs) are gaining popularity globally due to their ability to generate efficiency gains with limited public funding. However, the existence of various types of uncertainties, in particular, the cost of delivering environmental goods (own-cost uncertainties), can undermine the attractiveness of CTs as a conservation policy instrument. This paper uses the optimal bidding model to examine the bidding behaviour of risk-neutral and risk-averse bidders. We incorporate a security loading factor, which reflects a bidder's confidence in the data used to estimate the expected profit. The factor relates to the risk of facing the winner’s curse, that is, win the auction but experience higher than predicted cost. We then explore the impact of introducing an embedded insurance (a conservation insurance mechanism that is included in a successful conservation contract) on the expected profit as well as bidders' optimal bidding behaviour. We find that in the presence of own-cost uncertainty, the optimal bid rises due to the increased cost of participating in the auction. This is true for both risk-neutral and risk-averse bidders. However, in the presence of a conservation insurance mechanism the optimal bid reduces. |
| first_indexed | 2025-11-14T11:14:57Z |
| format | Conference Paper |
| id | curtin-20.500.11937-80099 |
| institution | Curtin University Malaysia |
| institution_category | Local University |
| last_indexed | 2025-11-14T11:14:57Z |
| publishDate | 2018 |
| recordtype | eprints |
| repository_type | Digital Repository |
| spelling | curtin-20.500.11937-800992021-01-05T00:09:45Z The influence of a conservation insurance mechanism on optimal bidding in risky conservation auctions Olita, Toto Schilizzi, Steven Iftekhar, Sayed Bidding theory Conservation tender Cost-effectiveness Insurance mechanism Own-cost uncertainty Conservation auctions or tenders (CTs) are gaining popularity globally due to their ability to generate efficiency gains with limited public funding. However, the existence of various types of uncertainties, in particular, the cost of delivering environmental goods (own-cost uncertainties), can undermine the attractiveness of CTs as a conservation policy instrument. This paper uses the optimal bidding model to examine the bidding behaviour of risk-neutral and risk-averse bidders. We incorporate a security loading factor, which reflects a bidder's confidence in the data used to estimate the expected profit. The factor relates to the risk of facing the winner’s curse, that is, win the auction but experience higher than predicted cost. We then explore the impact of introducing an embedded insurance (a conservation insurance mechanism that is included in a successful conservation contract) on the expected profit as well as bidders' optimal bidding behaviour. We find that in the presence of own-cost uncertainty, the optimal bid rises due to the increased cost of participating in the auction. This is true for both risk-neutral and risk-averse bidders. However, in the presence of a conservation insurance mechanism the optimal bid reduces. 2018 Conference Paper http://hdl.handle.net/20.500.11937/80099 http://fleximeets.com/wcere2018/?p=programme restricted |
| spellingShingle | Bidding theory Conservation tender Cost-effectiveness Insurance mechanism Own-cost uncertainty Olita, Toto Schilizzi, Steven Iftekhar, Sayed The influence of a conservation insurance mechanism on optimal bidding in risky conservation auctions |
| title | The influence of a conservation insurance mechanism on optimal bidding in risky conservation auctions |
| title_full | The influence of a conservation insurance mechanism on optimal bidding in risky conservation auctions |
| title_fullStr | The influence of a conservation insurance mechanism on optimal bidding in risky conservation auctions |
| title_full_unstemmed | The influence of a conservation insurance mechanism on optimal bidding in risky conservation auctions |
| title_short | The influence of a conservation insurance mechanism on optimal bidding in risky conservation auctions |
| title_sort | influence of a conservation insurance mechanism on optimal bidding in risky conservation auctions |
| topic | Bidding theory Conservation tender Cost-effectiveness Insurance mechanism Own-cost uncertainty |
| url | http://fleximeets.com/wcere2018/?p=programme http://hdl.handle.net/20.500.11937/80099 |