Combinatorial Auction Designs for Biodiversity Conservation

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.