Program > Papers by speaker > Kitessa Rahel Jigi

Monday 12
A1 - Asymmetric and Private Information, Mechanism Design
Chair: Rahel Jigi Kitessa
› 11:55 - 12:20 (25min)
› Room 003 - G. Dandelot
Daan Van Soest  1@  , Ty Turley  2@  , Paul Christian  3@  , Rahel Jigi Kitessa  1@  , Eline Van Der Heijden  1@  
1 : Tilburg University [Tilburg]  -  Website
PO Box 90153, 5000LE Tilburg -  Netherlands
2 : Brigham Young University  (BYU)  -  Website
773 TNRB Provo, UT 84602 -  United States
3 : The World Bank

Payment for Environmental Services (PES) is a method that pays low cost environmental goods and service providers. Targeting such providers allows efficient allocation of resources. The most widely utilized PES implementation instrument is posted offer take-it-or-leave-it (TILI) method. While TILI is easy to implement and does not discriminate among the service providers (thus less controversial), it does not eliminate the information rent problem. Hence, an alternative instrument suggested to address the information rent problem in PES implementation is the auction. Theoretically auction and posted offer price yield similar output given random allocation of subjects to these mechanisms. However, different studies have recorded discrepancies in the output between the two mechanisms, which is also confirmed by this paper. This paper explores the causes of disparity between the two mechanisms in which the role of behavioral variables and effort spent on decision making is analyzed, thus tests the deliberate choice hypothesis. The results suggest that variation in auction output can be predicted by behavioral parameters such as loss aversion, and risk aversion while same does not hold for TILI. Whereas, contrary to time spent on auction decision making, significantly lower effort is spent on decision making by the TILI. Accordingly, the auction outcome gives more information on decision making behavior than the TILI. 

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