Collective action vs. conservation auction: Lessons from a social experiment of a collective auction of water conservation contracts in Japan

In this study, we explore the possibility of "collective auction" of conservation contracts, and related issues, through a social experiment. We then propose an alternative policy to achieve both collective action in irrigation management and cost-effective water environment conservation. In a "collective auction", individual farmers as well as farmers' groups are allowed to participate. Communication and coordination among farmers and farmers' groups are allowed. Based on our participant survey and comparison with environmental payments for similar, previous conservation activities, the auction result shows that contract prices could be, at the very least, cost-effective. Moreover, collective irrigation management is not negatively affected owing to the auction. We find evidence of group participation and price coordination, which result in saving auction transaction costs, among local communities active in collective action in local resource management. Conversely, we find that bidding occurred at the individual farmer level as well. This difference in approach depends on the extent of the auction coordinators' commitment to the auction, reflected by their risk evaluation of unsuccessful bids. In either case, the auction coordinators could manage to minimize the likely unfairness arising from the auction. Although establishing a competitive environment to prevent possible collusion in such auctions is challenging, this study provides empirical evidence that collective action in pre-existing local resource management can reduce auction transaction costs. Utilizing local communities' abilities to organize collective action can reduce these costs and minimize the possible unfairness arising from the auction, thus facilitating compatibility between cost-effective conservation owing to the auction and local resource conservation by collective action. Finally, we suggest that (1) the transaction cost of such an auction could be reduced by allotting adequate time for collective decision making, and (2) conservation programs should be designed to minimize their impact on production bases.