Auctioning approaches for ecosystem services - Evidence and applications.

Auctions have attracted growing attention as bidding mechanisms for soliciting or allocating payments for a wide range of ecosystem services (ES). This paper reviews the latest scientific knowledge on ES auctioning approaches. Using systematically selected academic articles, we trace and discuss the development of ES auction literature across space, time, target ecosystem, and mechanism type. We integrate previous attempts to organize this body of work to produce a composite factor map of entry points to more specialized sub-literatures engaging with current issues in auction design and implementation. The results show that most academic work focuses on reverse auctions, where landowners bid their willingness to accept contracts to protect or promote ES provisioning, but we also locate several forward (i.e. beneficiaries bid their willingness to pay for ES) and mixed mechanisms. We critically analyze major advantages and challenges for each approach, emphasizing issues related to transaction costs and accessibility for participants and agencies. Overall, our findings suggest that ES auctions have a robust track record but remain administratively and logistically challenging. Further investment in open-source tools, shared infrastructure, and other efforts to make auctions more accessible to researchers, agencies, and participants alike is strongly indicated.

Does the Coase theorem hold in real markets? An application to the negotiations between waterworks and farmers in Denmark.

The Coase theorem depends on a number of assumptions, among others, perfect information about each other's payoff function, maximising behaviour and zero transaction costs. An important question is whether the Coase theorem holds for real market transactions when these assumptions are violated. This is the question examined in this paper. We consider the results of Danish waterworks' attempts to establish voluntary cultivation agreements with Danish farmers. A survey of these negotiations shows that the Coase theorem is not robust in the presence of imperfect information, non-maximising behaviour and transaction costs. Thus, negotiations between Danish waterworks and farmers may not be a suitable mechanism to achieve efficiency in the protection of groundwater quality due to violations of the assumptions of the Coase theorem. The use of standard schemes or government intervention (e.g. expropriation) may, under some conditions, be a more effective and cost efficient approach for the protection of vulnerable groundwater resources in Denmark.