Private Benefits of Conservation and Procurement Auction Performance

Payment-for-ecosystem services programs may use auctions to procure ecosystem services for cost-effective conservation. Conservation practices that generate private benefits (e.g., on-site benefits of erosion prevention) can reduce the effective cost of participation for landowners, and the inclusion of these services in the auction scoring criteria could increase overall cost-effectiveness for the buyer. However, the potential cost-effectiveness gain of including these private-benefit conservation practices may not be fully realized, as increased heterogeneity in the net cost of participation may reduce competition. Our induced-value laboratory experiment explores the impact of heterogeneous private benefits of conservation on auction cost-effectiveness when conservation practice choice is endogenous to offer formation. Heterogeneity in the private benefits of conservation across the landscape generates variation in competition levels across bidders that can lead to increased rent-seeking by bidders with substantial private benefits.