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Abstract
This article evaluates the cost-effectiveness of the Catchment Care Australian conservation
auction. It provides evidence of auction cost effectiveness, and estimates cost savings
from two discrete components: (i) the opportunity cost revelation incentive provided
by the auction mechanism, and (ii) the improved environmental targeting capacity
that results from development of a scientifically based environmental benefits assessment
capacity. Results show that there are potentially very large returns associated
with the latter component that have been overlooked in the literature.
Additionally, transaction costs involved with administering the case study conservation
auction and the prior non-auction payment policy are compared. We find that
the administration costs for the auction were greater than or equal to those associated
with the prior policy. Estimates of relative cost effectiveness across policies are shown
to be sensitive to the methods of comparison. In this case study, there is inelastic supply
of the last units of environmental benefit. This inelasticity results in large estimated
auction comparative cost advantage when the benefit metric is the estimated cost
required to achieve auction aggregate environmental benefit. Estimated benefit of the
auction is much less when measured as environmental benefits attainable with alternative
payment policies subject to the auction budget constraint.