Uniform-Price Reverse Auction for Estimating the Costs of Reducing Open-Field Burning of Rice Residue in Nepal

Abstract

This paper describes the design, implementation and results of a uniform-price reverse auction and real payment system to incentivize the avoidance of open-field burning of rice straw by smallholder farmers in Nepal. The main objective of the study was to reveal the private costs to farmers of avoiding rice straw burning. The study used survey and auction data from a sample of 317 farmers from 18 villages in Southern Nepal. Using a sealed bid one-shot reverse auction a level of payment was determined at which farmers would find acceptable to not engage in residue burning. Based on the bid amount, 167 winner farmers were enrolled in a real payment programme. The results revealed that 86 % of the farmers complied with the programme to refrain from burning rice straw with an average payment of US$ 78.76/ha of paddy farm, which represents US$ 13.17/ton of $\hbox {CO}_{\mathrm{2-eq}}$ of emissions. To identify the policy variables, linear and log-linear regressions were fitted with the bid amount using socioeconomic variables. Land area, farmer education, practice of joint household decision making, wage rate for farm labour and straw yield increased the bid amount. The design and methods of field implementation of the reverse auction gave useful information for the advancement of conservation auctions and their replication in developing countries.