Testing for allocation efficiencies in water quality tenders across catchments, industries and pollutants: A north Queensland case study

The design of competitive tenders to purchase environmental services requires judgements 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 and scope of tenders increases the likelihood that a larger range of proposals will be proposed and cost effective ones selected. However, the use of larger and more broadly scoped tenders may reduce landholder participation and increase asking bids. In the study reported here, these issues have been tested with a single water quality tender run in north-eastern Australia in 2007 and 2008. Post-hoc tests and workshop exercises show that while larger scale and scope tenders can generate efficiency gains, care has to be taken to maintain participation and avoid higher bid levels.