Should we combine incentive payments and tendering for efficiently purchasing conservation services from landholders?

Steven Schilizzi, Gunnar Breustedt and Uwe Latacz-Lohmann

No 59159, 2010 Conference (54th), February 10-12, 2010, Adelaide, Australia from Australian Agricultural and Resource Economics Society

Abstract: Policy makers aiming to get private landholders to provide non-marketed environmental services need to provide efficient economic incentives. Two ideas have been explored to achieve this: linking contract payments to environmental outcomes and putting the contracts up for tender. This paper investigates whether there are any gains to be had by combining the benefits of both approaches. Landholder risk aversion may offset incentive effects if the fall in participation outweighs any increases in individual effort. Using controlled lab experiments in two countries and across four subject groups, and systematically varying the rate at which payments are linked to uncertain outcomes, this paper clarifies the conditions under which incentives overcome risk-aversion – a parameter which was also measured. Results show that for risk averse landholders the most efficient approach is in general to tender contracts only moderately linked to environmental outcomes – that is, using a balanced combination of fixed input payments and of payments linked to uncertain outcomes. This paper also highlights how experiments can complement the inherent limitations of a purely theoretical analysis.

Keywords: Agricultural and Food Policy; Environmental Economics and Policy (search for similar items in EconPapers)
Pages: 33
Date: 2010
New Economics Papers: this item is included in nep-agr and nep-env
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Persistent link: https://EconPapers.repec.org/RePEc:ags:aare10:59159

DOI: 10.22004/ag.econ.59159

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