Conservation Auction in
Sumberjaya watershed:
Lessons learned for Payment for Sedimentation
Reduction Schemes in Indonesia
Beria Leimona (World Agroforestry Centre)
Kelsey Jack (Tuft University)
Conservation Tenders in Developed and
Developing Countries – Status Quo,
Challenges and Prospects
September 11-14, 2013
Boppard, Germany
Structure of presentation and
research
Part 1: Auction design and behaviour
• Laboratory experiment with students
• Framed-field experiment with hypothetical contract
• Natural-field experiment with real contract monitored
for 1 year performance
Part 2: Natural-field auction as part of a PES
programme to reduce sedimentation
• Monitoring results
• Farmers’ understanding to auction concept
• Perspective on social and environmental benefits of
contracted and non-contracted farmers
1 Auction design and
behavior
 A PES procurement contract
auction increases efficiency
of PES contract allocation.
 Design and administer
procurement auction for
farmers in developing
countries’ contexts
Design of Procurement Auction
Auction component
Options
Auction type
One-sided, sealed bid, 2nd price Vickrey
with budget constrained
Tie-rule
Random
Pricing rule
Uniform
Reserve price
Without reserve price
Bidding units
Total WTA
Bidder numbers
Known
Bidder strategy
No collusion
Activities contracted
Determined in advance
Number of rounds
Announced in advance
Announcement of provision winners
Announce ID numbers
Announcement of amount of limited
budget
Concealed
Room cleaning Contract
Scenario
To clean their boarding room once a
week.
Frequency of
monitoring
Every weekend –continuously for six
months.
Payment period 50% after signing the contract,
30% after three months of good
implementation and
20% at the end of the contract.
Baseline characteristics
Characteristics
Number of participants
Female
Laboratory auction
24
37.5%
Semester attended (mean)
6.12
Current cumulative grade (0-4) (mean)
2.82
Size of the room (mean) in m-square
11.86
Monthly expenditure at least $50-$70
87.5%
Sharing room
37.5%
Time spent inside the room daily (hour)
11.5
Daily cleaning room
66.7%
Access to cleaning tools
83.3%
Final auction outcomes from laboratory
experiment
Auction Outcomes
Number of winners
Number of m-square winning
9 (37.5%)
98.5 (34.6%)
Mean bid
5.16
Minimum bid
0.30
Maximum bid
50.00
Std deviation bid
10.83
Auction winners (Rp 10,000)
Mean bid
0.44
Minimum bid
0.30
Maximum bid
0.49
Std deviation bid
0.0571
Research Site: Sumberjaya District
Way Besai River
 55,000 ha sub-district
coinciding with Way Besai
upper watershed
 About 40% protection forest
and 10% national park
 2003: 82,453 people
 Density: 150 people/km
2
 Current public investment
scheme: land rehabilitation
and ‘community development’
program
Dam  Reward transfer for reducing
sedimentation from upstream
of the watershed
 Coffee cultivations:
monoculture and multistrata
 Community as ‘land managers’
 Agroforestry system (shade
coffee & fruit trees) could
maintain watershed function
Research Steps for Framed and Natural
Field Auction
Conservation Contract
Soil
conservation
activities




Sediment pits: 300 per hectare, standard
dimensions size: 100x150x40 cm evenly
distributed
Ridging: 50 percent of plot
Vegetation strips: surrounding pits and ridging
Maintaining all the land conservation structure
above for a year.
Payment
schedule
50 percent at inception; 50 percent at one year
contingent on performance
Duration and
monitoring
One year with monitoring every three months;
termination if 50% contracted activities not
completed by midterm monitoring date




Cancellation or non-compliance results in:
ineligibility for second payment installation
friction and conflict among community members
indication of corruption
Force majeur provision for contract terms in the event of natural
disasters
Baseline characteristics
Characteristics
Number of participants
Framed-field
auction
Natural-field
auction
43
82
Distance from plot to road (mean)
16.56
25.96
Asset (mean – Rp 10 000)
6963
7830
Education (yrs)
6.56
5.76
36% ; 50%
79% ; 66%
Slope (participants on slope >25%)
37%
46%
History with external organizations
(supported by at least 2
organizations)
91%
92%
Current soil conservation
Winners; losers
Final auction outcomes from field experiment
Auction Outcomes
Framed-field
Natural-field
19 (44%)
34 (41%)
16.5 (40%)
25 (37%)
231
264
Minimum bid
15
60
Maximum bid
2000
2500
416
310
111.45
115.38
Minimum bid
15
60
Maximum bid
300
150
78.59
19.95
Number of winners
Number of hectares
contracted
Mean bid
Std deviation bid
Auction winners (Rp 10,000)
Mean bid
Std deviation bid
0
0
500
Final bid (thousand Rp)
50
100
150
Final bid (Rp 10,000)
1000
1500
200
2000
Supply curve resulting from reverse auction
0
200
100
Metre-square enrolled
Laboratory auction
300
0
10
20
Hectare enrolled
30
40
Framed-field auction
Natural-field auction
Bid adjustment (absolute value) across learning round
Laboratory auction
Framed-field auction
Natural-field auction
2 Natural Field Auction and PES
experiment
• Total participants from 2 villages:
82 farmers bidding on 70 hectares
• Participants received contracts for soil
conservation:
34 farmers on 25 hectares
• Average price of contract:
USD 171.70 per hectare yearly
– labor requirements of contract based on wages
approximately USD 300
– Past investment for soil conservation activities
from survey USD 225
Average village compliance
Contract compliance
N
%
% activities
Mean bid
completed
(Rp 10 000)
Mid-point
2
6
26.13
100.00
32
94
99.81
116.41
Non-compliant
15
44.12
81.92
118.33
Compliant
19
55.88
132.68
113.16
Non-compliant
Compliant
Final
 Problem with the auction design?
 Good design but not understood?
 Optimal but realized cost and values makes it logical for people to be
aggressive early then defect
Farmers’ understanding of auction design
Variable
Understanding of the auction rules
Not understand at all
Moderately understand
Quite understand
Understand
Understand very well
Complexity of the auction rules
Very difficult
Quite difficult
Quite easy
Easy
Very easy
Fairness of the auction
implementation
Not fair
Fair
Frequency
Frequency
Non-contracted
(N=48)
Contracted
(N=34)
Total
3
16
11
3
15
(0.06)
(0.33)
(0.23)
(0.06)
(0.31)
0
8
12
3
11
(0.00)
(0.24)
(0.35)
(0.09)
(0.32)
3
24
23
6
26
2
17
7
18
4
(0.04)
(0.35)
(0.15)
(0.38)
(0.08)
1
14
10
7
2
(0.03)
(0.41)
(0.29)
(0.21)
(0.06)
3
31
17
25
6
3 (0.09)
31 (0.91)
10
72
7 (0.15)
41 (0.85)
Farmers’ understanding of auction design
Variable
Awareness of competition among
participants
Not aware
Aware
Contract value received
Too low
Not too low
Moderate
High
Too high
Willingness to change the offer
Yes
No
Frequency
Frequency
Non-contracted
(N=48)
Contracted
(N=34)
Total
10 (0.21)
38 (0.79)
9 (0.26)
25 (0.74)
19
64
19 (0.40)
17 (0.35)
12 (0.25)
-
5 (0.15)
17 (0.50)
12 (0.35)
-
24
34
24
-
12 (0.25)
36 (0.75)
12 (0.35)
22 (0.65)
24
58
Perspective of non-contracted and contracted farmers on
social impacts
Variable
Frequency
Frequency
Fisher’s exact test
Non-contracted (N=48)
Contracted (N=34)
P-value
Impact on relationships between winners
and losers
Very bad
0.143*
0 (0.00)
0 (0.00)
Bad
5 (0.10)
6 (0.18)
Quite good
17 (0.35)
9 (0.26)
Good
21 (0.44)
19 (0.56
Very good
5 (0.10)
0 (0.00)
Impact on general interpersonal
relationships among the community
Very bad
0.175
0 (0.00)
0 (0.00)
Bad
3 (0.06)
2 (0.06)
Quite good
18 (0.38)
13 (0.38)
Good
21 (0.44)
19 (0.56)
Very good
6 (0.13)
0 (0.00)
Impact on information exchange between
farmers
Very bad
0.055**
1 (0.02)
0 (0.00)
Bad
7 (0.15)
0 (0.00)
Quite good
19 (0.40)
17 (0.50)
Good
13 (0.27)
14 (0.41)
Very good
8 (0.17)
3 (0.09)
Perspective on environmental impacts from noncontracted and contracted farmers
Variable
Frequency
Frequency
Noncontracted
(N=48)
Contracted
(N=34)
Awareness of soil and water
conservation
Very bad
Bad
Quite good
Good
Very good
Willingness to implement soil and
water conservation
No
Yes
Fisher’s exact
test
P-value
0.188
0
2
30
7
9
(0.00)
(0.04)
(0.63)
(0.15)
(0.19)
0
1
16
12
5
(0.00)
(0.03)
(0.47)
(0.35)
(0.15)
0.340
(0.509)
2 (0.04)
46 (0.96)
0 (0.00)
34 (1.00)
Note:
results from 2-sided Fisher’s exact test are in parenthesis. The others are calculated
from 1-sided Fisher’s exact test.
For the frequency column, proportion is in parenthesis
Adopter and non-adopter
N
%
Mean bid
(Rp 10,000)
No adoption
17
35.42
336.87
Adoption
31
64.58
388.10
•
Compliance/adoption on bids is not significant
•
Changes in bidding (average adjustment) not significantly
predict compliance or adoption
Can it work in a rural context of
development countries?
• The auction for the PES programme in Indonesia
was designed for fairness reasons.
– uniform pricing
– However, uniform pricing is relatively less cost-effective
compared to the discriminative price rule.
• The auction was a multiple round consisting of
eight rounds with the last binding round.
– Farmers learned from the rounds of the auction.
However, the announced last round may introduce forms
of strategic behaviour.
– By announcing the last round, the benefits from farmers’
learning on the previous round and the advantages of a
one-shot auction for the last round were combined.
What are factors induced a high
accomplishment
rate?
Discussion
• The rate of accomplishment at the final
monitoring was moderate.
– lack of leadership and coordination among farmer group
members,
– difficulty in finding grass seedlings to accomplish the
contract, and
– coincidence with coffee harvesting time.
• In this specific case, private contract tends to be
more successful compared to collective contract
when leadership is lacking or “champion” among
the community members does not exist.
– Institutional aspects and contract flexibility might
influence the accomplishment of conservation efforts.
– Analysis showed that there were no significant
differences in level of understanding, complexity, and
competitiveness and conservation awareness between
compliant and non-compliant farmers.
Discussion
• A limitation of this study is that all units of
the pilot site were treated as homogeneous,
with respect to their contribution to erosion
and downstream sedimentation.
• For a larger scale allocation auction,
modifications such as using supply curve
information resulting from this procurement
auction would be more appropriate.
– a reasonable platform for designing a scaled up
payment scheme, including differential rates and
eligibility rules necessary for targeting participants.
How to make it work?
 The design of an experimental auction should
fit the purpose of overall objectives of a
conservation program.
 Design and administer a “fair” auction for
farmers with low formal education, prone to
social conflicts, and influenced by power
structures within their community.
Thank You
Future works within the World Agroforestry Centre
(ICRAF):
•
Extending PES schemes in watersheds in Indonesia
and testing conservation auctions for rural setting;
•
Integrating climate change adaptation and
mitigation
Contact: LBeria@cgiar.org