The allocation of scarce resources in miscellaneous cases

Key words: sustainable development, environmental utilization space (EUS),      auctions, conservation contracting, information asymmetry, agricultural land market, Town and Country Planning Act,AMS, agricultural trade negotiations, PSE. This book presents a number of papers that address different allocation problems. Each of them applies to specific situations, defined by the conditions assumed in the model. The papers appeared previously in different outlets and are reprinted by permission of the co-authors and publishers.The first paper - 'Sustainability: a review of the debate and an extension'- argues that the current debate on sustainability is obscured by a number of misunderstandings. These relate, first, to the ongoing dispute between ecologists and economists holding different visions about the limits of economic growth and the carrying capacity of the Earth; and second, to the discrepancy between theoretical sustainability and practical sustainability. The paper concludes that the current vagueness surrounding sustainability may be reduced by reframing the debate. It demonstrates that the dispute between ecologists and economists can largely be considered as unproductive because the only sustainability concept supported by theory is that of 'strong sustainability'. The paper argues further that the gap between theoretical and practical sustainability may be bridged by distinguishing three concepts which properly account for informational inadequacies and human preferences in the design of sustainability constraints. These are: the 'sustainable EUS' (Environmental Utilization Space), the 'measured EUS', and the 'chosen EUS'.In the second paper - 'Auctioning conservation contracts: a theoretical analysis and an application' - Auction theory is used to analyze the potential benefits of auctions in allocating contracts for the provision of nonmarket goods in the countryside. A model of optimal bidding for conservation contracts is developed and applied to a hypothetical conservation programme. The study shows that competitive bidding, compared to fixed‑rate payments, can increase the cost effectiveness of conservation contracting significantly. The cost revelation mechanism inherent in the bidding process makes auctions a powerful means by which to reduce the problems of information asymmetry. The study also shows that strategic bidding behaviour, which may adversely affect the performance of sequential auctions, is difficult to address by means of auction design.The third paper - 'Auctions as a means of creating a market for public goods from agriculture' - looks at the possibility of creating a market for environmental goods and services in the countryside by awarding conservation contracts to farmers on the basis of competitive bidding. Auctions have several theoretical advantages over alternative allocation mechanisms (such as standard‑rate payments) because they allow the participants to deal with informational asymmetries and the uncertainty about the value of the (nonmarket) goods being traded. A formal model of bidding behaviour in 'green auctions' shows that bidding strategies are determined by the individual farmers' costs of implementing the conservation contracts and their beliefs about the maximum acceptable payment level, making the auction an imperfect cost revelation mechanism. Auctions can reduce the information rents accruing to farmers and can increase the cost‑effectiveness of public goods provision. Strategic bidding behaviour in multiple‑signup auctions as well as high transaction costs are potential sources of reduced efficiency.The fourth paper - 'The pivotal role of the agricultural land market in the Netherlands' -analyzes the allocation of space in the Netherlands. In particular the effect of the 'Town and Country Planning  Act', government policies in respect of agriculture, nature, landscape, and the environment and developments in agricultural and non-agricultural sectors on the allocation and price of agricultural land. The study shows that viewed separately, the environmental, nature, and agricultural policies might be consistent with the goals they are supposed to achieve, but in interaction they are conflicting and preclude the simultaneous achievement of these very same objectives. The study also shows that the agricultural land market plays a pivotal role in this network of interactions. The EU market and price policy, with the exception of the milk quotas, caused the price of land to rise, and subsequently the land price rose again due to the environmental and nature policy needed to compensate for the negative effects of that agricultural policy. In addition, the economic boom of the late '90s  created a great many 'red' claims on agricultural land, which in combination with an unsteady 'Town and Country Planning Act', drives up land prices along with the general increase in real estate prices. For farmers, the resulting extremely high land price was reason to make even more intensive use of land.Finally, the fifth paper - 'The AMS in agricultural trade negotiations: a review' - reviews the role of the Aggregate Measure of Support (AMS) in the agricultural trade negotiations of the Uruguay Round. Contrary to expectations at the start of these negotiations, the AMS only occupies a subsidiary position in the final agreement. In order to explain this, first an economic analysis is presented of the Producer Subsidy Equivalent (PSE), the basic AMS concept in the GATT discussions. Secondly, the political AMS debate is described and analyzed, using information from unpublished GATT documents. Although the PSE concept is based on simple assumptions, its measurement already meets a number of difficult problems (policy coverage, product coverage, external references prices, currency). Once these are solved, the concept may offer a brief insight into actual governmental support in agriculture. However, the calculations do not provide a sound measure of the trade distortions caused by agricultural policies. Mainly for that reason, the idea of a pure aggregated approach - based on the AMS - proved unsuccessful in the negotiations. Instead, the Contracting Parties accepted the framework of making binding agreements on three separate areas: internal support, market access and export support. While important and very specific commitments were made in the areas of agricultural imports and exports, the AMS has only found application in the internal support area.