An auction mechanism for the optimal provision of ecosystem services under climate change

The provision of many ecosystem services depends on the spatial pattern of land use across multiple landowners. Even holding land use constant, ecosystem service provision may change through time due to climate change. This paper develops an auction mechanism that implements an optimal solution for providing ecosystem services through time with multiple landowners who have private information about the net benefits of alternative uses of their land. Under the auction, each landowner has a dominant strategy to truthfully reveal their private information. With this information a regulator can then implement the optimal landscape pattern, which maximizes the present value of net benefits derived from the landscape, following the rules of the auction mechanism. The auction can be designed as a subsidy auction that pays landowners to conserve or a tax auction where landowners pay for the right to develop. Our mechanism optimizes social adaptation of ecosystem management to climate change.