Exploring the efficiencies of using competitive tenders over fixed price grants to protect biodiversity in Australian rangelands

In rangeland areas, improved biodiversity management can be achieved by changing the financial incentives facing land managers. Competitive tenders and fixed price grants can both be applied to achieve the same environmental outcomes. In the case study described in this paper, the efficiencies of the two methods are compared. Operationally, the two mechanisms are similar in both cost and process. Both mechanisms have very important indirect benefits of building skills and knowledge in both landholders and the implementing agency, and building trust between the two. However, the heterogeneity in landholders’ opportunity costs revealed in the competitive tender trial means a discriminatory price mechanism is more efficient at matching program costs with direct environmental benefits. In terms of transfer payments, the competitive tender was 30% more cost efficient than a fixed price grant scheme. While the initial design and development costs of a tender may be greater than a grant, there was no evidence of any difference in operating costs in this case study. There was also little evidence of any indirect costs associated with the tender process, but it may be too early to make a realistic assessment.