Reverse auction ineffective at solving Marylandâ€™s crabbing woes
This summer, Maryland tried to address a growing problem in the Chesapeake Bay: there are too few blue crabs and too many licensed watermen. Efforts were directed to a particular set of watermen, the 3,676 individuals holding "limited crab catcher" licenses. A little more than half of the watermen in Maryland hold this kind of license. These watermen are limited to setting up to 50 wire-mesh pots to trap crabs underwater and don’t often make their living off crabbing. Many don’t even take advantage of their licensee privileges. According to the Maryland Department of Natural Resources, therein lies the problem.
When that many crabbers hold licenses, yet do not use them for years, it makes it difficult to forecast each year’s harvest. If those who have not crabbed for years suddenly decide to, it could cause the state to exceed catch limits.
Maryland decided to team with scholars to use modern economic theory to solve this problem. They came up with the idea of a "reverse auction."
In this auction, the state asked crabbers to name their own price for selling their license to the state. The theory behind reverse auctions is that since bidders are not allowed to know what others bid and the buyer has the right to decline bids, bidders will be enticed to bid low. This would allow the state to buy licenses as cheaply as possible.
The state went into the auction hoping to buy 2,000 licenses with money the federal government provided. The auction closed on July 31, with only 494 bids received and over half for $5,000 or more, an offer the state considered too high. One waterman offered his license for $425 million, an obvious act of protest to the auction.
So why were people so reluctant to participate? Some feared they would bid too low and be cheated. Some still make their living on the water. But to many, it is unsellable because it is proof of their identity. It is part of their heritage. It is tradition. In the words of one license holder when asked about selling, "I would feel like a part of me was gone."
The bid outcome forced the state to scrap the auction. The state is now offering to buy licenses at a fixed price of $2,260. Despite the results of the Maryland auction, Virginia is currently trying a reverse auction, with bids due November 1st.
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Photo: James A. Parcell, The Washington Post