Evaluating the potential contribution of contract auctions to AEP’s efficiency

Agri-Environmetal Policy (AEP) application raised a wide debate about the determination of payment levels and the efficiency of the economic instruments used. In particular, some aspects support the hypothesis of relevant rents due to an overcompensation of farmers’ compliance costs. A policy tool suitable for improving the efficiency of AEP can be the adoption of auctions mechanisms in contract allocation. In theory, in an auction mechanism, the farmers have incentives to reveal their compliance costs, helping to reduce the information rents and increase cost-effectiveness. A crucial problem therefore arises from the uneven distribution of information between landowners and the public administration. Auctions mechanism can be useful in reducing opportunistic behavior that arises due to these information asymmetries. The aim of this work is to simulate the potential contribution of auctions mechanism to the efficiency of Agri-Environmental contracts in Emilia Romagna Region (Italy). The results give some indications about the efficiency of auction mechanism compared to other contract mechanism.