The reform of the grass premium in France What design for an auction-based allocation mechanism?

This paper focuses on an auction for agri-environmental contracts providing both environmental and income-support benefits. The idea is to combine spatially-differentiated stewardship payments based on previous practices and environmental goods provided, and incentive payments for additional efforts provided by farmers on vulnerable zones. The challenge with such multi-dimensional auctions is to design a index capable of aggregating these benefits in a single score used to rank bids. We first conduct an analytical study of the solutions. Then numerical simulations are conducted, based on the Grass Premium data in France. We demonstrate that the relative maximum stewardship payments authorized in vulnerable and less vulnerable zones, as well as the relative weights given to environmental objectives and income support objectives can lead farmers to adopt bidding strategies which are not desirable for the policy-maker.