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Does tendering conservation contracts with performance payments generate additional benefits?

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

    Policy makers aiming to get private landholders to supply non-marketed environmental services may need to provide efficient economic incentives. Two ideas have been explored to achieve this: linking contract payments to environmental outcomes and submitting the contracts to competitive tender. This paper investigates whether there are any gains to be had by combining the potential benefits of both approaches. Landholders’ risk aversion to only partially controlled outcomes may offset incentive effects if the fall in participation outweighs any increases in individual effort. Controlled lab experiments were designed on the basis of a theoretical model and were run in two countries, with varying rates of payments linked to environmental outcomes. Results suggest that it can be counterproductive in terms of expected environmental outcomes to combine tenders with incentive payments, especially when the target population is known to be risk-averse.

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    Bibliographic Info

    Paper provided by University of Western Australia, School of Agricultural and Resource Economics in its series Working Papers with number 100883.

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    Date of creation: 18 Feb 2011
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    Handle: RePEc:ags:uwauwp:100883

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    Keywords: Conservation tenders; auctions; incentive contracts; agricultural policy; environmental policy; market-based instruments; experimental economics; Environmental Economics and Policy; Land Economics/Use; C92; D44; D82; D86; H57; Q24; Q28;

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    1. A. P. Moxey & B. White & R. A. Sanderson & S. P. Rushton, 1995. "An Approach To Linking An Ecological Vegetation Model To An Agricultural Economic Model," Journal of Agricultural Economics, Wiley Blackwell, vol. 46(3), pages 381-397.
    2. Ching-jen Sun, 2011. "A note on the dynamics of incentive contracts," International Journal of Game Theory, Springer, vol. 40(3), pages 645-653, August.
    3. Uwe Latacz-Lohmann & Carel Van der Hamsvoort, 1997. "Auctioning Conservation Contracts: A Theoretical Analysis and an Application," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(2), pages 407-418.
    4. Zabel, Astrid & Holm-Muller, Karin, 2007. "Performance payments for carnivore conservation in Sweden," Discussion Papers 57031, University of Bonn, Institute for Food and Resource Economics.
    5. Fraser, Rob W., 2002. "Moral Hazard and Risk Management in Agri-Environmental Policy," 2002 Conference (46th), February 13-15, 2002, Canberra 125086, Australian Agricultural and Resource Economics Society.
    6. Adam Ozanne & Ben White, 2007. "Equivalence of Input Quotas and Input Charges under Asymmetric Information in Agri-environmental Schemes," Journal of Agricultural Economics, Wiley Blackwell, vol. 58(2), pages 260-268, 06.
    7. Andrew Moxey & Ben White & Adam Ozanne, 1999. "Efficient Contract Design for Agri-Environment Policy," Journal of Agricultural Economics, Wiley Blackwell, vol. 50(2), pages 187-202.
    8. Rob Hart, 2005. "Combating moral hazard in agri-environmental schemes: a multiple-agent approach," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 32(1), pages 75-91, March.
    9. Gorddard, Russell J. & Whitten, Stuart M. & Reeson, Andrew, 2008. "When should biodiversity tenders contract on outcomes?," 2008 Conference (52nd), February 5-8, 2008, Canberra, Australia 5979, Australian Agricultural and Resource Economics Society.
    10. Stefan Hajkowicz & Andrew Higgins & Kristen Williams & Daniel P. Faith & Michael Burton, 2007. "Optimisation and the selection of conservation contracts," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 51(1), pages 39-56, 03.
    11. Costello, Christopher & Polasky, Stephen, 2004. "Dynamic reserve site selection," Resource and Energy Economics, Elsevier, vol. 26(2), pages 157-174, June.
    12. R. Preston McAfee & John McMillan, 1986. "Bidding for Contracts: A Principal-Agent Analysis," RAND Journal of Economics, The RAND Corporation, vol. 17(3), pages 326-338, Autumn.
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