An auction scheme for land use change in Sichuan Province, China

Abstract

This paper presents the application of an auction scheme for the allocation of funds for environmentally improving land use change (LUC) amongst farm households in Sichuan Province, China. Competing bids were ranked using their benefit to cost ratios. Results show that the auction approach can be both practically feasible and efficient in the Chinese context. The auction approach was 15% more cost-effective than the status quo fixed payment afforestation programme. The auction approach was also more closely targeted to achieve environmental improvements. Potential improvements to the auction process would be achieved through increased heterogeneity across bids and lower transaction costs from taking bids from aggregations of farmers.

Keywords:

• auction
• land use change
• China

Notes

1. The environmental attributes were also used in the choice modelling valuation exercise. In this way, the biophysical model is linked to the bid evaluation stage.

2. One mu is equivalent to 0.067 hectares.

3. The average disposable income is 28,838 yuan (USD 4325.7) in Shanghai and 18,659 yuan (USD 2798.9) in Chengdu (Shanghai Statistics Bureau 2010, Chengdu Statistics Bureau 2010).

4. One bid in Zhongba Village had a benefit-cost ratio of less than 1.0 and so was excluded.

5. Note that the existence of a negative cost saving does not necessarily imply that the CCFGP scheme is more economically efficient. The environmental benefits secured by the better targeted LUC scheme may outweigh its cost disadvantage.