A reverse auction in the Conestoga watershed in Pennsylvania
demonstrated that auctions are a more cost-effective way to
allocate conservation funding than the traditional funding allocation
process used in the U.S. Department of Agriculture’s
Environmental Quality Incentives Program (EQIP). On average,
the reverse auction resulted in a seven-fold increase in the
reduction of phosphorus runoff per dollar spent compared to
EQIP during the same period and in the same watershed.
In a reverse auction, multiple sellers compete to provide services
(environmental outcomes) to a single buyer. In the context
of conservation programs, sellers are typically land managers
such as farmers or ranchers; the buyer is typically a governmental
entity. The Conestoga Reverse Auction differed from
traditional funding allocation strategies in three ways:
It quantitatively estimated the expected reduction in
phosphorus runoff from proposed changes in management
It allowed farmers and ranchers to compete for funding
through unrestricted bidding.
It prioritized program payments based on how cost-effectively
reductions in phosphorus runoff could be achieved.
Cost-effectiveness was measured as the expected reduction
in phosphorus runoff per program dollar spent.
Government could improve the cost-effectiveness of their conservation
funding by implementing reverse auctions or incorporating
the principles of reverse auctions into their conservation
program design. Specifically, policy-makers could improve the
allocation of conservation funding in three ways:
Increase the use of quantitative measurements of performance
(e.g., measuring the reduction in nutrient runoff for
water quality improvement) to rank funding applicants.
Use measures of cost-effectiveness to rank funding applicants.
Allow competitive bidding between funding applicants.