Agri-environmental auctions: choosing the farm area put under contract

All theoretical papers modelling agri-environmental auctions neglect the issue of farm size by assuming that farmers bid only for one hectare. We analyse the theoretical outcomes of an agri-environmental auction when farmers bid on the proportion of the farm area they wish to put under contract and on the average compensatory payment. We simulate the effect of the compliance cost structure on auction performance. We also show that imposing stricter requirements in terms of environmental efforts per ha can either lead farmers to increase the proportion of their farmland under contract or to decrease it. Numerical simulations based on a French case study illustrate how various rules concerning the maximum allowed payment per farm affect the distribution of net profits to farmers