In a reverse auction, multiple sellers compete to provide services (environmental outcomes) to a single buyer. In the context of conservation programs, sellers are typically land managers such as farmers or ranchers; the buyer is typically a governmental entity. The Conestoga Reverse Auction differed from traditional funding allocation strategies in three ways:
- It quantitatively estimated the expected reduction in phosphorus runoff from proposed changes in management practices.
- It allowed farmers and ranchers to compete for funding through unrestricted bidding.
- It prioritized program payments based on how cost-effectively reductions in phosphorus runoff could be achieved.
- Cost-effectiveness was measured as the expected reduction in phosphorus runoff per program dollar spent.
Government could improve the cost-effectiveness of their conservation funding by implementing reverse auctions or incorporating the principles of reverse auctions into their conservation program design. Specifically, policy-makers could improve the allocation of conservation funding in three ways:
- Increase the use of quantitative measurements of performance (e.g., measuring the reduction in nutrient runoff for water quality improvement) to rank funding applicants.
- Use measures of cost-effectiveness to rank funding applicants.
- Allow competitive bidding between funding applicants.