Testing for scope and scale efficiencies in water quality tenders: A North Queensland case study

The design of competitive tenders to purchase environmental services requires judgments to be made about the funding scale and tender scope, with the latter incorporating considerations of geographic area, industries involved and the types of environmental outputs required. Increasing the scale of tenders allows more environmental services to be purchased and helps increase participation, while increasing the scope allows a greater range of proposals to be advanced. Larger scale tenders may generate some administrative efficiencies, but larger scoped tenders are more complex to run and may generate perverse incentives for landholders to be involved. In the study reported here, these issues have been tested with a water quality tender run in north-eastern Australia in 2007 and 2008. The results show scale and scope changes can have large direct and indirect effects on the cost-efficiency of these mechanisms.