Managed grasslands contribute in a number of ways to the biodiversity of European agricultural landscapes and provide a wide range of ecosystem services that are also of socio-economic value. Against the background of a rapid biodiversity loss in agricultural landscapes, increasing attention is being paid to farming practices that enhance ecosystem services. Therefore developing cost-effective conservation payment schemes is the main challenge facing present European agri-environmental policy. However, there is still a serve shortage of knowledge and practical experiences concerning the use of conservation procurement auctions in Europe. The aim of the paper, therefore, is twofold. Firstly, the current state of using markets for biodiversity by means of payment-by-results biodiversity conservation procurement auctions will be discussed by reviewing two field experiments with farmers in two case- study areas in Germany. Secondly, further need for research will be discussed briefly. Keeping in mind the methodological difficulties of evaluating field experiments, this empirical work indicates a potential for budgetary cost advantages of auctioning compared to traditional fixed flat-rate payment schemes of up to 52 per cent. These findings along with the relatively high number of successful participants indicate that this specific approach will most probably be an improvement over current agri-environmental programmes in the EU. This is mainly because low-cost producers gain smaller information rents and conservation agencies will be able to close contracts with (some) high-cost farmers due to cost-effectiveness gains provided by low-cost landowners. Even though the case-studies have yielded promising results, some critical aspects as well as lessons to be learnt will be discussed to improve the design and performance of upcoming biodiversity conservation procurement auctions based on performance payments. Current need for research addressed in the paper takes deals with the design of a specific agri-environment index for plant biodiversity.
