Comparing effectiveness and return on investment of action‐ and results‐based agri‐environmental payments in Switzerland

Agri‐environmental schemes are an important policy tool to foster agricultural sustainability. We assess the effectiveness and return on investment of two different schemes designed to encourage biodiversity conservation in Switzerland: payments for actions and payments for results. Empirically, we exploit a major policy reform that created a natural experiment by abruptly and unevenly increasing both payments across farmers. Using difference in differences, we estimate the effect of the policy reform on farmers for whom only the action‐ or the results‐based payments increased, as well as on those for whom both increased, compared to farmers for whom neither increased. Our findings are fourfold: First, higher payments increased the biodiversity conservation area. A payment raise by 1% increased conservation areas on average by 0.6% in the action based, and by 1% in the results‐based scheme. Second, the combination of both schemes increased average effectiveness but also windfall gains. Third, using a benefit transfer approach, we estimate a positive return of investment for all payment increases. Finally, the estimated return on investment for the results‐based payments is higher than for the action‐based payments.