PERSPECTIVES ON COMPETITIVE BIDDING: RETIREMENT OF ENVIRONMENTALLY SENSITIVE FARMLAND

The USDA has used bidding to enroll land into the Conservation Reserve Program (CRP) and may use similar mechanisms to implement other policy instruments in which some or all agricultural land cropping rights are acquired to protect or increase environmental amenities. Experience with the CRP suggests that current enrollees are being compensated in excess of the lowest payment they would be willing to accept in exchange for loss of cropping rights. While it may be prohibitively expensive to estimate such reservation prices on all potential CRP parcels, it is likewise difficult to design a bidding mechanism that induces landowners to reveal these values. While the competitive bidding and contingent valuation literatures provide some guidance, the problem of designing a cost effective bidding mechanism for land retirement does not conform precisely to situations in which theoretical, experimental or case study results have been reported. Despite this, realistic incremental changes in the CRP's current bidding mechanism that induce competitive behavior among bidders appear to portend significant savings in government outlays