Buying spatially-coordinated ecosystem services : an experiment on the role of auction format and communication

Abstract

Procurement auctions are one of several policy tools available to incentivise the provision of ecosystem services and biodiversity conservation. Successful biodiversity conservation often requires a landscape-scale approach and the spatial coordination of participation, for example in the creation of wildlife corridors. In this paper, we use a laboratory experiment to explore two features of procurement auctions in a forest landscape: the pricing mechanism (uniform vs. discriminatory) and availability of communication (chat) between potential sellers. We modify the experimental design developed by Reeson et al. (2011) by introducing uncertainty (and hence heterogeneity) in the production value of forest sites as well as an automated, endogenous stopping rule. We find that discriminatory pricing yields to greater environmental benefits per government dollar spent, chiefly because it is easier to construct long corridors. Chat also facilitates such coordination but also seems to encourage collusion in sustaining high prices for the most environmentally attractive plots. These two effects offset each other, making chat neutral from the viewpoint of maximizing environmental effect per dollar spent.