A Montero Auction Mechanism to Regulate Antimicrobial Consumption in Agriculture

Abstract

Livestock production accounts for the lion's share of antibiotic consumption worldwide, and the sector is a significant contributor to antimicrobial resistance (AMR). Because farmers do not consider the contribution of their individual consumption of antibiotics to AMR, regulations are necessary to ensure optimal use. However, previously suggested regulatory instruments are either inefficient or nearly impossible to implement, mainly because they fail to address the information asymmetry that exists between farmers and regulators. In this article, we customize and suggest an efficient and incentive‐compatible regulatory instrument for antibiotic use based on the Montero auction mechanism (2008). We analytically and empirically demonstrate that the proposed auction mechanism is welfare improving as compared to current regulations. For the empirical analysis, we calibrate a simulation model for the Danish livestock sector based on farm accounts data for different types of livestock farms and combine it with calibrated demand functions for antibiotic allowances and a calibrated damage function. Based on the simulation results and the implementation of systems such as the Danish VETSTAT (a detailed accounting of farmers' antibiotic use), we anticipate that the proposed mechanism can be effectively used in the future.