Experimental auctions

Experimental auctions have become a popular method in evaluation research because it elicits individual’s real willingness-to-pay (WTP) and willingness-to-adopt (WTA) value. This real value is only expressed when auctions are well organised and the bidding for the product resembles bids in non-hypothetical situation (Canavari et al., 2019). There are different types of bidding procedures such as Becker-DeGroot-Marschak (BDM) mechanisms,2^nd price, 3^rd price, 4^th price, 5^th price, n price mechanisms. Food scientists have used auctions to determine preferences of new food products and identify market value for the product (Morawetz et al., 2011).[AJ(1] In a meta-analysis of 83 comparisons of WTP from hypothetical and non-hypothetical situation, Murphy et al., (2005) find that valuations of WTP in hypothetical settings are 1.3 times higher on average than those from non-hypothetical situation. Though this mechanism is relatively new in the field of RTB crops, and for deterimining farmers’ valuing seeds and varieties in general, the number of studies using this mechanism is growing. A WTP study using existing validated auction and bidding mechanisms requires substantial financial resources.

Tool description here

User guide: see handbooks under references.

References:

Shogren, J.F. (2005). “Experimental Methods and Valuation.” in Handbook of Environmental Economics, K.G. Mäler and J. Vincent, eds. Amsterdam:North-Holland.

Lusk, J.L. and J. Shogren. (2007). Experimental Auctions: Methods and Applications in Economic and Marketing Research. Cambridge, UK: Cambridge University Press.

Loheac, Y., B. Brest, S. Issanchou. (2007). “Using Auctions to Estimate Prices and Value of Food Products.” Consumer-Led Food Product Development, H. MacFie, ed. Cambridge, UK: Woodhead Publishing.

Canavari, M., A.C. Drichoutis, J. Lusk, R.M. Nayga, Jr. (2019). How to run an experimental auction: a review of recent advances, European Review of Agricultural Economics 46, (5): 862–922, https://doi.org/10.1093/erae/jbz038

Morawetz, U.B., De Groote, H., Kimenju, S.C. (2011). Improving the use of experimental auctions in Africa: Theory and evidence, Journal of Agricultural and Resource Economics 36 (2): 263-279.

Murphy, J., Allen, G., Stevens, T. and Weatherhead, D. (2005). A Meta-Analysis of Hypothetical Bias in Stated Preference Valuation. Environmental and Resource Economics 30: 313-325.

Contact: Srini.Rajendran@cgiar.org