Testing the Design Variables of ECOSEL: A Market Mechanism for Forest Ecosystem Services

Abstract

ECOSEL is a voluntary market framework for private provision of forest ecosystem services. Multiobjective optimization is used in conjunction with a unique funding mechanism to generate and market forest management alternatives that are projected to lead to efficient bundles of ecosystem services on a piece of forestland. ECOSEL allows the public to bid on the competing alternatives. Whichever option attracts the highest combined value of bids over the associated costs is implemented by the landowner. We conduct a series of experiments to test and inform the design of the mechanism in an attempt to maximize social surplus and seller revenues. We find that allowing the participants to communicate with each other during bidding increases the likelihood of an outcome that maximizes social surplus. We also find that a lower number of alternatives presented for bidding increases seller profit. Last, threshold cost disclosure, to disclose the amount of money to the bidders that would have to be raised for a particular alternative, has a mixed impact depending on the perceived value of the services. We identify a range of public good values for which cost disclosure is always the best policy with respect to both social surplus and seller profit. FOR .S CI. ❚❚(❚):000-000.