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Abstract
Making conservation program payments conditional on outcomes
offers potential efficiency and innovation improvements over input based contracts.
This paper explores the trade-offs involved in choosing the payment criteria for
biodiversity tenders. A model where the budget for a conservation tender can be
allocated to input, outcome or mixed payments is used to explore the impacts of
hidden actions, adverse selection, and landholder risk aversion on the optimal policy
design. We discuss the implications of these results for the design of the ‘Nest Egg’
tender. This tender is targeting habitat and breeding of ground-nesting birds in the
New South Wales Murray Catchment.