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Uniform-Price Reverse Auction for Estimating the Costs of Reducing Open-Field Burning of Rice Residue in Nepal

Abstract

This paper describes the design, implementation and results of a uniform-price reverse auction and real payment system to incentivize the avoidance of open-field burning of rice straw by smallholder farmers in Nepal. The main objective of the study was to reveal the private costs to farmers of avoiding rice straw burning. The study used survey and auction data from a sample of 317 farmers from 18 villages in Southern Nepal. Using a sealed bid one-shot reverse auction a level of payment was determined at which farmers would find acceptable to not engage in residue burning. Based on the bid amount, 167 winner farmers were enrolled in a real payment programme. The results revealed that 86 % of the farmers complied with the programme to refrain from burning rice straw with an average payment of US$ 78.76/ha of paddy farm, which represents US$ 13.17/ton of \(\hbox {CO}_{\mathrm{2-eq}}\) of emissions. To identify the policy variables, linear and log-linear regressions were fitted with the bid amount using socioeconomic variables. Land area, farmer education, practice of joint household decision making, wage rate for farm labour and straw yield increased the bid amount. The design and methods of field implementation of the reverse auction gave useful information for the advancement of conservation auctions and their replication in developing countries.

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Notes

  1. Uniform price auction (UPA) induces bidders to reveal their true costs of non-burning and lowers the cost to the buyer of the non-burning ecosystem protection service (Hailu and Thoyer 2006).

  2. To reduce the chance of speculation and strategic bias, the budget available to fund payments for each village was disclosed only after bidding concluded.

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Acknowledgments

This work has been undertaken with the financial support of the South Asian Network for Development and Environmental Economics (SANDEE) and its sponsors. Technical support and guidance has been provided by several SANDEE advisors and peers during the course of this research.

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Correspondence to Krishna Prasad Pant.

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This paper has not been submitted elsewhere in identical or similar form, nor will it be during the first three months after its submission to the Publisher.

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Pant, K.P. Uniform-Price Reverse Auction for Estimating the Costs of Reducing Open-Field Burning of Rice Residue in Nepal. Environ Resource Econ 62, 567–581 (2015). https://doi.org/10.1007/s10640-014-9830-8

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Keywords

  • Black carbon
  • Conservation auction
  • Cost of emission reduction
  • Nepal
  • Rice straw burning
  • Payment experiment
  • Uniform-price auction