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The Impact of Information Provision on Agglomeration Bonus Performance: An Experimental Study on Local Networks

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  • Banerjee, Simanti
  • de, Vries Frans
  • Hanley, Nicholas
  • van, Soest Daan

Abstract

The Agglomeration Bonus (AB) is a mechanism to induce adjacent landowners to spatially coordinate their land use for the delivery of ecosystem services from farmland. This paper uses laboratory experiments to explore the performance of the AB in achieving the socially optimal land management configuration in a local network environment where the information available to subjects varies. The AB poses a coordination problem between two Nash equilibria: a Pareto dominant and a risk dominant equilibrium. The experiments indicate that if subjects are informed about both their direct and indirect neighbors' actions, they are more likely to coordinate on the Pareto dominant equilibrium relative to the case where subjects have information about their direct neighbors' action only. However, the extra information can only delay - and not prevent - the transition to the socially inferior risk dominant Nash equilibrium. In the long run, the AB mechanism may only be partially effective in enhancing delivery of ecosystem services on farming landscapes featuring local networks.

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File URL: http://hdl.handle.net/1893/16484
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Bibliographic Info

Paper provided by University of Stirling, Division of Economics in its series Stirling Economics Discussion Papers with number 2013-09.

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Date of creation: Aug 2013
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Handle: RePEc:stl:stledp:2013-09

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Postal: Division of Economics, University of Stirling, Stirling, Scotland FK9 4LA
Phone: +44 (0)1786 467473
Fax: +44 (0)1786 467469
Web page: http://www.econ.stir.ac.uk/
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Related research

Keywords: Agglomeration bonus; agri-environment schemes; biodiversity conservation; ecosystem services; information spillovers; Payments for Ecosystem Services; spatial coordination;

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References

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