Conservation Auction Research Articles

Spatially coordinated conservation auctions: A framed field experiment focusing on farmland wildlife conservation in China

AbstractHow best to incentivize land managers to achieve conservation goals in an economically and ecologically effective manner is a key policy question that has gained increased relevance from the setting of ambitious new global targets for biodiversity conservation. Conservation (reverse) auctions are a policy tool for improving the environmental performance of agriculture, which has become well‐established in the academic literature and in policy making in the US and Australia. However, little is known about the likely response of farmers to incentives within such an auction to (1) increase spatial connectivity and (2) encourage collective participation. This paper presents the first framed field experiment with farmers as participants that examines the effects of two features of conservation policy design: joint (collective) participation by farmers and the incentivization of spatial connectivity. The experiment employs farmers in China, a country making increasing use of payments for ecosystem services to achieve a range of environmental objectives. We investigate whether auction performance—both economic and ecological—can be improved by the introduction of agglomeration bonus and joint bidding bonus mechanisms. Our empirical results suggest that, compared to a baseline spatially coordinated conservation auction, the performance of an auction with an agglomeration bonus, a joint bidding bonus, or both, is inferior on two key metrics—the environmental benefits generated and cost effectiveness realized.

The influence of contract length on the performance of sequential conservation auctions

AbstractThe present article explores the extent to which the performance of a sequential conservation auction can be improved by changing the duration of conservation contracts. Optimal bidding in the context of a sequential conservation auction is modeled as a dynamic optimization problem and solved through backward induction. We show that a longer duration of conservation contracts increases not only the privately optimal bid of a risk‐neutral bidder but also the probability that a land plot is included in a conservation program. Whether a longer duration of conservation contracts increases or decreases the budgetary cost effectiveness and economic efficiency of a sequential auction depends on the scale of variation for the cutoff bid.

Spatial Coordination and Joint Bidding in Conservation Auctions

Spatial coordination of land use change is pivotal in agri-environmental policy to improve the delivery of environmental goods. This paper implements a laboratory experiment to study spatial coordination in a conservation auction. In addition to letting individual producers bid competitively against each other to supply environmental goods, we ask whether opportunities for joint bidding can enhance spatial coordination in the auction cost-effectively. Auction performance depends on the nature of incentives for individual bids; in particular, whether an agglomeration bonus is offered for individual bids. With an individual bonus in place, joint bidding gives no improvement in either environmental benefits procured or cost-effectiveness. Absent an individual bonus, joint bidding improves environmental performance but can decrease cost-effectiveness. Further, across both individual and joint bidding treatments, the average environmental benefits, degree of spatial coordination, and cost-effectiveness are greater, and amount of seller markups lower, with multiple-round bidding compared to single-round bidding.

Information Access, Conservation Practice Choice, and Rent Seeking in Conservation Procurement Auctions: Evidence from a Laboratory Experiment

AbstractExisting research emphasizes the sensitivity of conservation auction performance and bidder behavior to auction design choices, as these auctions are not incentive compatible, meaning rent seeking must be controlled. Procuring agencies must decide how to provide bidders with information about the environmental quality of different conservation practices to manage the trade‐off between an increased probability of selecting the optimal practice and increased rent‐seeking behavior associated with this information. We use an induced‐value laboratory experiment to explore how access to quality information and variation in the bid‐submission protocol can best be combined to improve auction performance. We find that the auction performs best when a bid‐menu format, in which participants submit bids for all their practices, is combined with information about the environmental quality rank of available conservation practices.

Can partial project selection improve conservation auction performances?

ABSTRACTConservation auctions often follow an ‘all or nothing’ bid selection approach, which restricts the selection of the most suitable parts of a submitted project. The problem with ‘lumpy’ (or all-or-nothing) project selection has been identified in the literature as a major problem in conservation policy; however, the extent of the problem has been rarely quantified. Using an actual conservation tender dataset from Tasmania, the effect of the approach was estimated. This study finds that with a relatively small budget, the cost-effectiveness loss could be as high as one-quarter. To avoid such problem, a partial bid selection could be applied. The basic principle of a partial bid selection is to invite a single project from each landholder with the option for the environmental planning agency to partially select sections of the offer lands that maximise the achievement of the agency's policy objectives. A sensitivity analysis with different bid and ecological value correction factors shows that when the corrections are low, the partial selection approach could be more cost-effective than an ‘all or nothing’ approach. The results indicate that agencies should consider alternative project selection approaches with better targeting capabilities.

An experimental examination of target based conservation auctions

Conservation auctions are increasingly employed to increase the provision of Ecological Goods and Services (EG&S) for achieving environmental goals. Most applications of conservation auctions concern the efficient allocation of a fixed conservation budget. However an important and under-explored application of conservation auctions is in meeting environmental targets, either as part of regulatory compliance by industry or by governments in meeting specified policy objectives. This paper examines the ability of a conservation auction to meet an environmental target. We use experimental economics methods benchmarked to a wetlands restoration case study to examine bidder behavior and efficiency in both budget constrained and target constrained auctions when landowners with increasing marginal costs can offer increasing sized bundles of wetland acres. The target constrained auction is characterized by an all or nothing rule, where there is no payout if the target is not met. We find that rent seeking and average cost in the target constrained auction is less than in a budget constrained auction, but that efficiency eroded in repeated rounds suggesting learning effects as participants realize there is no budget cap. Even with learning effects the target based auction out-performs the budget based auction. Adding a reserve price to the target based auction significantly reduced rent seeking but also increased the probability that the target was not met. The results have important implications for auction design in real world settings.

Institutional constraints on conservation auction: Organizational mandate, competencies and practices

Auctions appeal to analysts and policy designers because of their potential efficiency in recruiting new areas for nature conservation. The failure to develop genuine auctions and competitive tender processes is typically blamed on the design and the attractiveness of the instrument. However, the institutional constraints that a new competitive mechanism faces when placed in a real-world ecological-institutional setting are only partly anticipated by the theoretical and analytical approaches. This paper explores the theory-based principles of cost-effectiveness against a real-world auction instrument designed for forest biodiversity conservation in Finland. The instrument, called “Natural Values Trading”, specified that the tenders should be invited and compared on an annual basis but the competitive procedure was not operationalized. Instead, sites were evaluated on a first come – first serve basis, applying ecological criteria and pricing based on opportunity costs. The institutional constraints of the auction mechanism centred on the difficulty that public authorities geared toward implementing law and treating citizens equally faced with a competitive arrangement. The pressure to generate instant impact overrode experimenting with new mechanisms and exiting an administrative comfort zone. The findings conform to the institutional theories that identify challenges with matching organizational mandate, reallocating and developing organizational competencies as well as changing informal organizational and professional practices. The design of biodiversity conservation mechanisms will not go far by focusing solely on cost-effectiveness; instead, the institutional friction should be taken seriously and organizational mandates, competencies and practices should be addressed explicitly.

Too Burdensome to Bid: Transaction Costs and Pay‐for‐Performance Conservation

AbstractIn a world free of transaction costs, reverse auctions have the potential to cost‐effectively allocate payment for environmental service contracts by targeting projects that provide the most benefit per dollar spent. However, auctions only succeed if enough farmers choose to bid so that the auctioneer can evaluate numerous projects for targeted funding. A 2014 conservation auction to allocate payments for practices that reduce phosphorus runoff in Northwest Ohio experienced very thin bidding. According to a follow‐up survey, auction participation was deterred by the perceived complexity of the bidding process and the need to negotiate with renters. Due to low participation, the actual conservation auction made payments for phosphorus reduction that were surprisingly costly at the margin. Applying a farmer behavioral model to the Western Lake Erie Basin, we simulate participation choice and cost‐effectiveness of environmental outcomes in reverse auctions and uniform payment conservation programs. Results reveal that when perceived transaction costs of bid preparation are high, reverse auctions can be less cost‐effective than spatially targeted, uniform payment programs that attract higher participation.

Policies with varying costs and benefits: A land conservation classroom game

ABSTRACTSome policies try to maximize net benefits by targeting different individuals to participate. This is difficult when costs and benefits of participation vary independently, such as in land conservation. The authors share a classroom game that explores cases in which minimizing costs may not maximize benefits and vice versa. The game is a contextually rich pedagogical tool, putting students in the role of landowners who must decide whether to conserve land in different policy environments: flat conservation payments, agglomeration bonuses, and a conservation auction. Students learn about specific issues in land conservation, ecosystem services, preferences for nonmoney outcomes, and general issues in policymaking. The game is suited to classes in environmental, resource, agricultural, and policy economics, and more general classes in microeconomics and public policy.

To Bid or Not to Bid: The Role of Participation Rates in Conservation Auction Outcomes

In this article, I jointly analyze stated willingness to accept values with revealed auction bids from fishing license buybacks in the Chesapeake Bay blue crab fishery in order to better understand the link between participation decisions and conservation outcomes. In contrast with theoretical expectations, I find individuals with the lowest willingness to accept participated in these reverse auctions at lower rates than other eligible individuals, all else being equal. This suggests that who bids in an auction plays an important role in the success of conservation outcomes. These results indicate that market design should expand to consider how, and whether, the economic incentives underlying auction participation align with desired conservation outcomes, both within fisheries and in natural resource management more broadly.

Collective action vs. conservation auction: Lessons from a social experiment of a collective auction of water conservation contracts in Japan

In this study, we explore the possibility of “collective auction” of conservation contracts, and related issues, through a social experiment. We then propose an alternative policy to achieve both collective action in irrigation management and cost-effective water environment conservation.In a “collective auction”, individual farmers as well as farmers’ groups are allowed to participate. Communication and coordination among farmers and farmers’ groups are allowed.Based on our participant survey and comparison with environmental payments for similar, previous conservation activities, the auction result shows that contract prices could be, at the very least, cost-effective. Moreover, collective irrigation management is not negatively affected owing to the auction.We find evidence of group participation and price coordination, which result in saving auction transaction costs, among local communities active in collective action in local resource management. Conversely, we find that bidding occurred at the individual farmer level as well. This difference in approach depends on the extent of the auction coordinators’ commitment to the auction, reflected by their risk evaluation of unsuccessful bids. In either case, the auction coordinators could manage to minimize the likely unfairness arising from the auction.Although establishing a competitive environment to prevent possible collusion in such auctions is challenging, this study provides empirical evidence that collective action in pre-existing local resource management can reduce auction transaction costs. Utilizing local communities’ abilities to organize collective action can reduce these costs and minimize the possible unfairness arising from the auction, thus facilitating compatibility between cost-effective conservation owing to the auction and local resource conservation by collective action.Finally, we suggest that (1) the transaction cost of such an auction could be reduced by allotting adequate time for collective decision making, and (2) conservation programs should be designed to minimize their impact on production bases.

Do conservation auctions crowd out voluntary environmentally friendly activities?

Research has shown that introducing external incentives to encourage pro-social behavior, such as monetary rewards or regulation, may crowd out voluntary pro-social activity. This has implications for the appropriate design and use of such incentive-based programs. This study investigates motivational crowding out in the case of conservation auctions, a relatively new tool that provides monetary incentives to encourage landowners to adopt environmentally friendly management practices. Our experimental evidence shows that the introduction and subsequent removal of a conservation auction significantly reduces voluntary provision of environmental quality (via monetary donations to an environmental charity), compared to a control group that does not experience an auction. We also attempt to examine some economic theories of behavior that explain this effect according to either individual motivations or social interactions, and our initial exploration finds that crowding out occurs regardless of whether or not participants have opportunities to interact with one another during the experiment.

Information and Auction Performance: A Laboratory Study of Conservation Auctions for Spatially Contiguous Land Management

Conservation auctions are used by public agencies to procure environmental friendly land uses from private landowners. We present the structure of an iterative conservation auction that ranks bids according to a scoring rule intended to procure spatially adjacent conservation land use projects. Laboratory experiments are conducted to compare the performance of this auction under two information conditions. Under one condition subjects have knowledge about the spatial goal implemented by the scoring rule and in the other case they don’t. The results indicate that rent-seeking is intensified with more information and increased bidder familiarity with the auction. Revealing the spatial information on the other hand has no impact on auction efficiency.

Understanding why landholders choose to participate or withdraw from conservation programs: A case study from a Queensland conservation auction

Ensuring adequate participation by private landholders in a conservation scheme is a challenge for program managers around the world. This paper uses a case study of the Vegetation Incentives Program from Queensland, Australia, to contribute additional information to the literature on influences on participation in conservation, and to offer insight into ways to improve program design to optimise participation. The research is particularly of interest to programs that include a tender mechanism or conservation covenant in their designs. Participation in the Vegetation Incentives Program was limited outside two small geographic areas, with the result that the budget was not expended. A survey of participants revealed that a narrow subset of the rural population was attracted to participate, namely highly educated, experienced landholders with positive environmental attitudes and a low opportunity cost of participation. The research also investigated why some landholders chose to withdraw from the program before full participation. Both qualitative and quantitative methods were used in the analysis. There were a variety of reasons for making the decision to leave, including disliking the requirement for permanent protection, the tender mechanism employed, and not understanding the process well enough. This information can help improve conservation outcomes by understanding where to target limited efforts in a catchment, and clarifying the likely limitations of some aspects of scheme design.

Lock-In Effects in Competitive Bidding Schemes for Payments for Ecosystem Services

Competitive bidding is considered to be a cost-effective allocation mechanism for payments for ecosystem services. This article shows that competition is not a necessary condition for sustaining cost-effectiveness in the long run. In a repeated conservation auction, learning, specific investments and the creation of social capital bias the chances of winning a follow-up contract in favour of former auction winners. Applying the concept of fundamental transformation (Williamson 1985), we argue that this asymmetry weakens competition and leads to lock-in effects between the auctioning agency and a stable pool of sellers with uncertain consequences for cost-effectiveness. We compare data from two laboratory experiments on auction-based conservation programmes and show under which conditions lock-in effects are likely to occur in a controlled environment. Our findings demonstrate lock-in effects do not erode the effectiveness of an auction but change the rules of the game towards more favourable conditions for the provision of the targeted good or service. In view of the empirical evidence for a superior performance of long-term contract relationships compared to low-cost short-term contracting, we discuss directions for follow-up empirical work.

The impact of permanent protection on cost and participation in a conservation programme: A case study from Queensland

Conservation covenants have become a popular tool to protect land in perpetuity. Understanding the impact of a covenant on price and enrolment in a conservation programme can help decision makers plan their interventions more carefully, and judge whether the extra longevity justifies the changed participation rate and cost. This paper uses the case study of a conservation auction in Queensland, Australia, to investigate the influence of a compulsory conservation covenant on bid price and participation. Results from the case study indicate that inclusion of a mandatory covenant reduced participation rates and increased costs, and resulted in a narrow subset of the rural population participating in the auction and providing competitive bids. In particular, non-production landholders were more likely to participate and to provide lower bids.

Combinatorial Auction Designs for Biodiversity Conservation

A conservation auction is a tender mechanism for allocating project contracts among landholders for undertaking environmental conservation activities. Typically, environmental indices (EIs) are used to combine multiple project benefits into an overall score for selecting successful projects. However, higher flexibility and efficiency can be achieved by allowing bidders to offer different combinations of conservation benefits where projects are evaluated directly in terms of their multiple outcomes. Combinatorial auctions that allow bidders to express their preferences for a combination of projects can be attractive. In this article, we discuss three major features of combinatorial auction designs that would be useful in conservation: submission of multiple projects by individual bidders, consideration of cost complementarities by individual bidders, and flexibility in project evaluation by the auctioneer. Using a stylized simulation experiment, we quantify and demonstrate the benefits of these features for some hypothetical conservation situations.

The Effect of Bidder Heterogeneity on Combinatorial Conservation Auction Designs

In an iterative combinatorial auction, bidders can submit bids on individual and/or on combinations of projects in a series of intermediate rounds, where bid prices are revised before a final allocation is made. The iterative format is useful for conservation service procurement as landholders can rely on market information revealed through the rounds to evaluate their choices of projects and bid prices. However, there is no single way of providing the market information. Different designs for generating price information have been proposed. Little is known about the performance of iterative combinatorial auction designs when heterogeneous bidders, with different cost structures, participate in an auction. Using an agent based model, we evaluate a selected set of designs under different bidder heterogeneity scenarios. We observe that higher degrees of heterogeneity lead to lower auction efficiency and that auction outcomes are highly sensitive to price feedback design choices.

Optimal conservation investment for a biodiversity‐rich agricultural landscape*

This study develops a theoretical and empirical framework for optimal conservation planning using satellite land cover data and economic data from a farm survey. A case study is presented for a region within the South‐west Australia Biodiversity Hotspot (Nature403, 853). This Biodiversity Hotspot is a focus for conservation investment as it combines a relatively high level of biodiversity with severe threat to the biodiversity from agriculture. The conservation planning model developed determines the optimal set of bush fragments for conservation. This model can also be used to assess the trade‐off between the budget and a vegetation species metric. Results from the case study show that, without an effective conservation scheme that at least fences fragments, significant plant biodiversity losses will occur in the North East Wheatbelt Regional Organisation of Councils region of the WA wheatbelt over a 10‐year period. A perfect price discriminating auction scheme could reduce the costs of conservation by around 17 per cent relative to a fixed‐payment scheme; however, a fixed payment on outcome (measured as change in the species metric) scheme represents a viable second‐best alternative, to a conservation auction, where conservation spending is spatially targeted.

Implementing and evaluating the effectiveness of a payment scheme for environmental services from agricultural land

SUMMARYThe current rapid decline in biodiversity in human-dominated agricultural landscapes, both in Europe and worldwide, impacts on the provision of environmental services essential to human well-being. There is, therefore, a pressing need to develop and implement incentive-based conservation policies to counteract the ongoing loss of biodiversity. This paper presents results of a regionally-scaled conservation procurement auction, a type of incentive-based payments for environmental services (PES), targeted at the conservation of arable plant diversity. By matching arable fields that were participating in the PES scheme to control fields that were not enrolled in the PES scheme, two critical key characteristics were addressed, namely additionality and bid prices. Additionality was addressed by evaluating whether fields for which PES were issued had significantly higher arable plant diversity than the matched control fields. The cost-effectiveness of a conservation auction increases if payments compensate just farmers’ opportunity costs (in terms of forgone production); bid prices of participating farmers were thus also evaluated to determine whether they were related to their individual opportunity costs. The PES scheme proved to be highly effective in ensuring environmental services delivery through enhanced arable plant diversity on participating fields. In contrast, the potential of the proposed conservation auction design to raise cost-effectiveness has to be questioned, because bid prices submitted in this scheme substantially exceeded individual farmers’ opportunity costs. Therefore, bid prices were most likely influenced by socioeconomic factors other than opportunity costs. This case study illustrates potentials and pitfalls associated with the implementation of a PES scheme and, by evaluating the effectiveness of the scheme, contributes to an improved understanding of incentive-based mechanisms for both policymakers and practitioners involved in PES scheme design and implementation.