Which Agglomeration Payment for a Sustainable Management of Organic Soils in Switzerland? – An Experiment Accounting for Farmers' Cost Heterogeneity

Degradation of organic soils leads to substantial greenhouse gas emissions. Preservation of these soils is in conflict with their current intensive use, as preservation would require restricting drainage. Due to spatial interdependencies of organic soil areas, rewetting these soils requires cooperation among farmers. Agglomeration payments are a potential option to foster such cooperation. In order to test the effectiveness of this policy approach, we developed a dynamic and framed economic experiment to represent the decision situation of farmers operating on organic soils in Switzerland. Our sample population are farm apprentices. Unlike previous experiments on agglomeration payments, our design allows for heterogeneity and dynamic changes in farmers’ opportunity costs and for side payments between players. We compared the effects of constant vs. variable agglomeration payment schemes on the adoption of sustainable use of organic soils. The variable payment mirrors the evolution of farmers’ opportunity costs over time. We find that while both policy options promote sustainable land use, the constant payment option performs best in terms of environmental effectiveness. The constant payment also yields lower inequality in income and is more cost-effective than the variable option. Furthermore, risk aversion and inequality aversion appear to influence behavior and reduce cooperation among players.