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  • Title: A revealed preference approach to estimating supply curves for ecosystem services: use of auctions to set payments for soil erosion control in Indonesia.
    Author: Jack BK, Leimona B, Ferraro PJ.
    Journal: Conserv Biol; 2009 Apr; 23(2):359-67. PubMed ID: 18983597.
    Abstract:
    To supply ecosystem services, private landholders incur costs. Knowledge of these costs is critical for the design of conservation-payment programs. Estimating these costs accurately is difficult because the minimum acceptable payment to a potential supplier is private information. We describe how an auction of payment contracts can be designed to elicit this information during the design phase of a conservation-payment program. With an estimate of the ecosystem-service supply curve from a pilot auction, conservation planners can explore the financial, ecological, and socioeconomic consequences of alternative scaled-up programs. We demonstrate the potential of our approach in Indonesia, where soil erosion on coffee farms generates downstream ecological and economic costs. Bid data from a small-scale, uniform-price auction for soil-conservation contracts allowed estimates of the costs of a scaled-up program, the gain from integrating biophysical and economic data to target contracts, and the trade-offs between poverty alleviation and supply of ecosystem services. Our study illustrates an auction-based approach to revealing private information about the costs of supplying ecosystem services. Such information can improve the design of programs devised to protect and enhance ecosystem services.
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