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

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  • Schilizzi, Steven
  • Breustedt, Gunnar
  • Latacz-Lohmann, Uwe
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    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.

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    File URL: http://purl.umn.edu/59159
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    Bibliographic Info

    Paper provided by Australian Agricultural and Resource Economics Society in its series 2010 Conference (54th), February 10-12, 2010, Adelaide, Australia with number 59159.

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    Date of creation: 2010
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    Handle: RePEc:ags:aare10:59159

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    Related research

    Keywords: Conservation tenders; auctions; incentive contracts; agricultural policy; environmental policy; market-based instruments; experimental economics; Agricultural and Food Policy; Environmental Economics and Policy;

    This paper has been announced in the following NEP Reports:

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    1. Ching-jen Sun, 2008. "A Note on the Dynamics of Incentive Contracts," Economics Series 2008_23, Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance.
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