Incorporating Variable Costs of Adoption into Conservation Auctions

Conservation auctions are a policy tool designed to provide incentives for the implementation of beneficial management practices (BMPs) more efficiently than traditional policies. Few practical auctions have been performed in Canada and there is limited understanding of how producers would react to them. A combination of experimental conservation auctions conducted at the University of Alberta and a producer survey in Miami, Manitoba were used for this thesis. We attempt to elicit risk aversion and determine how it factors into auction behaviour and performance. A risk aversion task was conducted to establish risk aversion levels for experimental auction participants and survey participants. University participants and producers exhibited similar risk aversion levels. We find risk averse individuals submitted bids closer to their BMP adoption costs. Potential cost variation also affects bidding behaviour; participants mark up their bids when there is a risk of their costs changing.