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Designing a Procurement Auction for Reducing Sedimentation: A Field Experiment in Indonesia

Author

Listed:
  • Beria Leimona

    (The World Agroforestry Center)

  • Brooke Kelsey Jack

    (The World Agroforestry Center)

  • Betha Lusiana

    (The World Agroforestry Center)

  • Rachman Pasha

    (The World Agroforestry Center)

Abstract

The setting of this study is a watershed in Lampung, Indonesia where soil erosion has broad implications for both on-site and off-site environmental damage. The strategy to engage farmers in environmental protection initiative is through the Payment for Environmental Services (PES) scheme. A key condition of PES is transparency regarding the conditions under which incentives or rewards can be granted. Balanced information and the power of transaction are the basis for any environmental service (ES). A contract procurement auction is an alternative mechanism for extracting information from ES providers on levels of payments or incentives that will cover their costs when joining a conservation program. This study tested the application of a procurement auction method to reveal hidden information on the opportunity costs of supplying environmental services. The result show that a seal-bid, multiple round second-price Vickrey auction with a uniform price can be applied where most of the auction participants have a low education level, low asset endowment, small plot size and where market-based competitiveness is not common. It reveals too that farmers' bids to be involved in conservation contracts is more dependent on their learning process during the auction than observable factors such as their socioeconomic background, their awareness of conservation and their social capital state. Finally, it shows that introducing procurement auction as a market-based approach to rural communities does not harm their social relationships and is an applicable method in a rural setting.

Suggested Citation

  • Beria Leimona & Brooke Kelsey Jack & Betha Lusiana & Rachman Pasha, 2010. "Designing a Procurement Auction for Reducing Sedimentation: A Field Experiment in Indonesia," EEPSEA Research Report rr2010042, Economy and Environment Program for Southeast Asia (EEPSEA), revised Apr 2010.
  • Handle: RePEc:eep:report:rr2010042
    as

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    File URL: http://www.eepsea.org/pub/rr/12711225121Beria_Final_2009-RR10.pdf
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    References listed on IDEAS

    as
    1. Grieg-Gran, Maryanne & Porras, Ina & Wunder, Sven, 2005. "How can market mechanisms for forest environmental services help the poor? Preliminary lessons from Latin America," World Development, Elsevier, vol. 33(9), pages 1511-1527, September.
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    1. McGrath, F.L. & Carrasco, L.R. & Leimona, B., 2017. "How auctions to allocate payments for ecosystem services contracts impact social equity," Ecosystem Services, Elsevier, vol. 25(C), pages 44-55.
    2. Ajayi, Oluyede C. & Jack, B. Kelsey & Leimona, Beria, 2012. "Auction Design for the Private Provision of Public Goods in Developing Countries: Lessons from Payments for Environmental Services in Malawi and Indonesia," World Development, Elsevier, vol. 40(6), pages 1213-1223.

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    Keywords

    watershed; Indonesia;

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