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Context Matters: Exploring the Cost-effectiveness of Fixed Payments and Procurement Auctions for PES

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  • Lundberg, Liv
  • Persson, U. Martin
  • Alpizar, Francisco
  • Lindgren, Kristian

Abstract

Successfully implemented payment for ecosystem services (PES) programs can provide both conservation of nature and financial support to rural communities. In this paper, we explore how PES programs can be designed so as to maximize the amount of additional ecosystem services provided for a given budget. We also provide a brief summary of the use of auction mechanisms in real world PES programs. To explore the potential additionality of different PES program designs we use a conceptual agent based simulation model where payments are either fixed, or set through a uniform or discriminatory auction. The program can also be designed to target payments to land-owners based on their provision of ecosystem services. Theoretically, auctions should be the most effective design, especially if payments are differentiated and targeted by ecosystem service provision. However, what we find is that the context in which the PES program is implemented—baseline compliance with program standards among the participants, correlation between opportunity costs and ecosystem services in the landscape, heterogeneity in costs and budget size—has a determining impact on the relative effectiveness of the different payment designs, with fixed payments schemes being much more effective than auctions in certain settings. Our findings suggest that context should be taken into serious consideration when a PES program design is chosen.

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  • Lundberg, Liv & Persson, U. Martin & Alpizar, Francisco & Lindgren, Kristian, 2018. "Context Matters: Exploring the Cost-effectiveness of Fixed Payments and Procurement Auctions for PES," Ecological Economics, Elsevier, vol. 146(C), pages 347-358.
    • Handle: RePEc:eee:ecolec:v:146:y:2018:i:c:p:347-358
    DOI: 10.1016/j.ecolecon.2017.11.021
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    5. Luc Behaghel & Karen Macours & Julie Subervie, 2018. "Can RCTs help improve the design of CAP," Working Papers hal-01974425, HAL.
    6. Luc Behaghel & Karen Macours & Julie Subervie, 2019. "How can randomised controlled trials help improve the design of the common agricultural policy?," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 46(3), pages 473-493.
    7. Ito, Junichi & Feuer, Hart N. & Kitano, Shinichi & Asahi, Haruka, 2019. "Assessing the effectiveness of Japan's community-based direct payment scheme for hilly and mountainous areas," Ecological Economics, Elsevier, vol. 160(C), pages 62-75.
    8. Berthet, Alice & Vincent, Audrey & Fleury, Philippe, 2021. "Water quality issues and agriculture: An international review of innovative policy schemes," Land Use Policy, Elsevier, vol. 109(C).
    9. Wallander, Steven & Paul, Laura A. & Ferraro, Paul J. & Messer, Kent D. & Iovanna, Richard, 2023. "Informational nudges in conservation auctions: A field experiment with U.S. farmers," Food Policy, Elsevier, vol. 120(C).
    10. Nguyen, Chi & Latacz-Lohmann, Uwe, 2023. "Assessing the performance of agglomeration bonus in budget-constrained conservation auctions," 97th Annual Conference, March 27-29, 2023, Warwick University, Coventry, UK 334544, Agricultural Economics Society - AES.
    11. Ferré, Marie & Engel, Stefanie & Gsottbauer, Elisabeth, 2018. "Which Agglomeration Payment for a Sustainable Management of Organic Soils in Switzerland? – An Experiment Accounting for Farmers' Cost Heterogeneity," Ecological Economics, Elsevier, vol. 150(C), pages 24-33.
    12. Oliveira Fiorini, Ana Carolina & Mullally, Conner & Swisher, Marilyn & Putz, Francis E., 2020. "Forest cover effects of payments for ecosystem services: Evidence from an impact evaluation in Brazil," Ecological Economics, Elsevier, vol. 169(C).
    13. Cardona Santos, Elsa & Storm, Hugo & Rasch, Sebastian, 2021. "The cost-effectiveness of conservation auctions in the presence of asset specificity: An agent-based model," Land Use Policy, Elsevier, vol. 102(C).
    14. Nguyen, Chi & Latacz-Lohmann, Uwe & Hanley, Nick & Schilizzi, Steven & Iftekhar, Sayed, 2022. "Spatial Coordination Incentives for landscape-scale environmental management: A systematic review," Land Use Policy, Elsevier, vol. 114(C).
    15. Thilo W. Glebe, 2022. "The influence of contract length on the performance of sequential conservation auctions," American Journal of Agricultural Economics, John Wiley & Sons, vol. 104(2), pages 739-764, March.
    16. Ito, Junichi, 2022. "Program design and heterogeneous treatment effects of payments for environmental services," Ecological Economics, Elsevier, vol. 191(C).
    17. Harriet Toto Olita & Md. Sayed Iftekhar & Steven G. M. Schilizzi, 2023. "Optimizing contract allocation for risky conservation tenders," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 25(1), pages 63-85, January.
    18. De Petris, Caterina & Drechsler, Martin, 2023. "Harnessing social norms to gain cost-effectiveness in conservation schemes through dynamic scheme design: implications of bounded rationality and other-regarding preferences for Payments for Ecosystem," MPRA Paper 119534, University Library of Munich, Germany, revised 03 Jan 2024.

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    More about this item

    Keywords

    Payment for ecosystem services; Conservation auctions; Auction efficiency; Additionality; Benefit targeting; Agent based modelling;
    All these keywords.

    JEL classification:

    • Q57 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Ecological Economics
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques

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