Tuesday 6
Participation and scale: stories of resilience and development in rural systems
Laura Schmitt Olabisi
› 11:35 - 12:30 (55min)
Environmental services contract auctions: efficient, fair, transparent, and pro-poor?
John Kerr  1@  
1 : Department of Community Sustainability, Michigan State University

Decentralized natural resource governance offers greater participation by local people in initiatives that affect them. It promises better environmental outcomes based on local knowledge, insight, and ability to adapt.  On the other hand, where institutions are weak and society is fragmented, decentralized decision-making may reinforce existing power dynamics and increase discrimination against the poorest and weakest. How can we design natural resource management systems in ways that address social and environmental interests at multiple scales, while also balancing local autonomy with protection of the weak?

A recent project in Tanzania's Uluguru Mountains raises interesting questions in this regard.  An experimental auction was used to assign tree-planting contracts. Trees offer carbon sequestration benefits at the global scale, watershed protection at the regional scale, and household-level benefits that must be weighed against costs of allocating land to trees.

From an economic theory perspective, procurement auctions facilitate efficient allocation of environmental services contracts because they encourage bidders to reveal their true willingness to accept payment to provide services (in this case, to plant trees). On the other hand, auctions are decidedly top-down and the only real opportunity for participation is up-front work with local people to determine what tree species interest them.

In our auction, the lowest 22 bidders earned tree contracts. Each received a uniform price equal to the value of the first rejected bid. In a true payment for environmental services contract, payment must be conditional on delivery of services (i.e. planting trees and keeping them alive). We lacked the resources to make payments conditional and had to pay up front; journal reviewers understandably criticized this approach. Interestingly, 18 of 19 contract winners who were monitored 21 months after the auction had complied with the contract. The other one could have complied even had payments been conditional. In a group discussion, winners explained that they had bid low because they wanted to plant trees, and up-front payments enabled them to bear the cost whereas delayed payments conditional on tree survival might not have worked for them. They said they had faced social pressure from their neighbors to comply with the contract, explaining that nearly everyone knew that they had been paid to plant the trees, and those who did not win bids did not want to see them receive money without complying. Bid winners also expressed satisfaction that the auction process offered a fair and transparent way to assign projects, unlike typical development projects where the benefits often end up in the hands of the most powerful.

This performance and feedback suggest auctions can facilitate fairness and transparency that is often missing from development projects. We do not know if our experience would have been replicated in different sites or had it operated at a larger scale, where peer pressure might not have applied. We also do not know if conditional payments would have generated the same social pressure. Can PES auctions offer unanticipated benefits beyond efficient contract allocation? Are there related opportunities to design interventions with similarly favorable properties?


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