Payments for Ecosystem Service (PES) schemes increasingly use auctions to target funds
to low-cost providers, aiming to increase value-for-money. To date, PES auctions have
most often employed “Pay-as-Bid” (PaB) pricing, in which successful participants are
paid the amount stipulated in their bid(s). Alternative pricing rules exist, ...
Payments for Ecosystem Service (PES) schemes increasingly use auctions to target funds
to low-cost providers, aiming to increase value-for-money. To date, PES auctions have
most often employed “Pay-as-Bid” (PaB) pricing, in which successful participants are
paid the amount stipulated in their bid(s). Alternative pricing rules exist, such as the
“Uniform Price” (UP) rule, in which successful bids receive the same per unit payment
determined by the marginal bid. Despite being successfully applied in other settings, the
use of UP pricing in PES auctions has been limited. We explore the impact of UP pricing
in the context of a scheme incentivising farmers to reduce nutrient run-off. Following
our intervention, the auction through which contracts were allocated to farmers switched
from PaB to UP. Our analysis provides the first real-world, causal evidence on the effect
of alternative auction pricing rules in this context. We find that UP pricing reduced mean
bids, by 40%. A priori the impact on payments made to the farmers is ambiguous, yet
we find these to be reduced by a similar amount. Moreover, the UP format reduces the
incidence of costly bidding behaviours, updating and sniping, by approximately 50% and
30% respectively. These significant and substantial changes suggest wider adoption of UP
pricing in PES auctions is likely warranted.
