Combinatorial Auction Designs for Biodiversity Conservation

Abstract

A conservation auction is a tender mechanism for allocating project contracts among landholders for undertaking environmental conservation activities. Typically, environmental indices (EIs) are used to combine multiple project benefits into an overall score for selecting successful projects. However, higher flexibility and efficiency can be achieved by allowing bidders to offer different combinations of conservation benefits where projects are evaluated directly in terms of their multiple outcomes. Combinatorial auctions that allow bidders to express their preferences for a combination of projects can be attractive. In this article, we discuss three major features of combinatorial auction designs that would be useful in conservation: submission of multiple projects by individual bidders, consideration of cost complementarities by individual bidders, and flexibility in project evaluation by the auctioneer. Using a stylized simulation experiment, we quantify and demonstrate the benefits of these features for some hypothetical conservation situations.

Keywords:

• auction efficiency
• biodiversity conservation
• combinatorial auction
• conservation auction

Acknowledgments

This article is part of a PhD thesis by M. S. Iftekhar submitted to the University of Western Australia. The study of M. S. Iftekhar was supported by the International Post-graduate Student Research Scholarship and UWA Post-graduate Award Schemes. The authors are grateful to the editor and three anonymous reviewers for their constructive comments.

Notes

Note. M = malleefowl bidder type, Ph = phascogale bidder type, Py = python bidder type, and M, Ph, & Py = bundle bidder type. The numbers in column 2 and 3 indicate the number of different types of bidders participating in an auction.

Note. Triple asterisk indicates significant at 1% level of significance. SC, NB, and BL represent bidder type scenario, number of bids submitted by each bidder, and proportion of bundle bidders in an auction, respectively.

Note. In SC1, only item bidders participated. In SC2, only constrained bundle bidders participated, and in SC3 only bundle bidders participated.