Adapting auctions for the provision of ecosystem services at the landscape scale

Auctions, or competitive tenders, are capable of overcoming information asymmetries to efficiently allocate limited funding for the provision of ecosystem services. Most auctions focus on ecosystem services on individual properties to maximise the total amount provided across the landscape. However, for many services it is not just the total quantity but their location in the landscape relative to other sites that matters. For example, biodiversity conservation may be much more effective if conserved sites are connected to other conserved areas. Adapting auctions to address ecosystem services at the landscape scale requires a good scientific understanding of the biophysical system. It also requires an auction mechanism which can promote coordination while maintaining the competition required to overcome information asymmetries. Iterated auctions, in which bidding is spread out over a number of rounds, with information provided between rounds on the location of other bids in the landscape, offers an approach to cost effectively deliver landscape-scale ecosystem services outcomes. Experimental economic testing shows that these auctions deliver the most cost effective environmental outcomes when the number of rounds is unknown in advance, which minimises rent seeking behaviour. It also shows that a bid improvement rule facilitates coordination and reduces rent seeking. Where the biophysical science is well developed, such auctions should be relatively straight forward to implement and participate in, and have the potential to provide significantly better outcomes than standard ‘one-shot’ tenders.