Measuring the Cost-effectiveness of Conservation Auctions Relative to Alternate Policy Mechanisms

The principle motivation for using price-discriminating conservation auctions is that they are expected to be significantly more cost-effective than fixed-price mechanisms. This paper measures cost effectiveness for tenders from two rounds of the Auction for Landscape Recovery in Western Australia relative to counterfactual fixed-price mechanisms. If we assume that the bid equals the compliance cost, the auction gives a significant cost saving over fixed-price mechanisms. If instead we assume that bids include an element of rent, fixed-price mechanisms can be more cost effective than the auction. The significance of these results is that a fixed price scheme may achieve a similar level of cost effectiveness to a conservation auction, when one or more of the following apply: compliance costs do not vary significantly between producers, auction bids have a significant element of rent and the auction incurs a significant additional administrative cost.