Auction Design for the Private Provision of Public Goods in Developing Countries: Lessons from Payments for Environmental Services in Malawi and Indonesia

Payments for environmental services programs use direct incentives to improve the environmental impacts of private land use decisions. An auction offers an approach to efficiently allocating contracts among least-cost landholders, which can improve the
overall cost-effectiveness of the approach. However, experiences with auctions in developing country settings are limited. We compare the results of two case studies that use auctions to allocate payments for environmental service contracts in Indonesia and Malawi. While the settings and the contracts differ, regularities in auction design allow comparisons and general lessons about the application of auctions
to payments for environmental services programs.