Implementing the Optimal Provision of Ecosystem Services

Many ecosystem services are public goods whose provision depends on the spatial pattern of land use. The pattern of land use is often determined by the decisions of multiple private landowners. Increasing the provision of ecosystem services, while beneficial for society as a whole, may be costly to private landowners. A regulator interested in providing incentives to landowners for increased provision of ecosystem services often lacks complete information on landowners’ costs. The combination of spatially-dependent benefits and asymmetric cost information means that the optimal provision of ecosystem services cannot be achieved using standard regulatory or payment for ecosystem services (PES) approaches. Here we show that an auction that pays a landowner for the increased value of ecosystem services generated by the landowner’s actions provides incentives for landowners to truthfully reveal cost information, and allows the regulator to implement the optimal provision of ecosystem services, even in the case with spatially-dependent benefits and asymmetric information.