Exploring the Cost Effectiveness of Land Conservation Auctions and Payment Policies

Until recently public efforts to encourage conservation on private land in many countries has primarily been through uniform payment policies. Auctions are increasingly used as a payment mechanism to acquire public benefits such as conservation actions that provide environmental improvements on private land (e.g. the US Conservation Reserve Program (CRP). The economic rationale for use of auctions is that they create decentralised incentives to offer bids at close to the true landholder opportunity costs, even when the implementing agency holds little information about these opportunity costs. This paper assesses the cost of a case study auction relative to four payment policies that use varying levels of information strategically to reduce rent payment and to prioritise funding based on environmental value. The results suggest that the estimated cost savings achievable with the discriminant price auction for conservation contracts depends on the policy to which the auction outcomes are compared. Auction cost savings are likely to be greatest when compared to policy alternatives involving little effort to discriminate amongst offers based on differences in landholder opportunity costs. A further key finding is that, for this case study, most of the savings resulting from the discriminant price auction could be attributed to the use of the environmental benefits index in project ranking and selection.