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Buying environmental services from private landholders using tendering mechanisms are usually subject toa budget constraint. Auction theory has mostly focused on target-constrained auctions and is less welldeveloped for this type of auction. This paper examines a theoretical model specifically developed forbudget-constrained tenders and assesses its capacity to predict tendering performance under informationlimitations typical of those found in field applications. But this assessment cannot be done withoutcomplementing the model with controlled laboratory experiments. Subject to their external validity, we findthat the model is able to make the correct policy recommendation when comparing the tender to anequivalent fixed price scheme, even when the accuracy of its prediction is far from perfect. However, thestudy suggests that more than a single point estimate of bidders’ costs is needed for this to happen,indicating that it should be worthwhile for policy administrators to invest in some information acquisitionbefore deciding to run a tender.
