Optimal design of pro-conservation incentives
Payments for environmental services (PES) schemes have become an increasingly accepted and popular mode for governmental and non-governmental agencies to use in addressing local and regional declines in ecosystem services. In PES schemes, payments can either be tied to indicators of actions for service provision or to indicators of the generated service itself. Performance payments are synonymous for this second group, i.e. payments are completely contingent on the procurement of an environmental good or service. Such a focus raises several practical issues during implementation. We review and translate key aspects of the economic theory of incentives into the context of performance payment schemes with special attention paid to two practical issues: risks outside the individual's control and distortion in the measurement of environmental services. Four different incentive payment approaches are presented and the effects of risk and distortion on optimal incentives are discussed. The investigation of each payment approach is accompanied by a discussion of examples from the field.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ferraro, Paul J., 2008. "Asymmetric information and contract design for payments for environmental services," Ecological Economics, Elsevier, vol. 65(4), pages 810-821, May.
- Simpson, R. David & Ferraro, Paul, 2000.
"The Cost-Effectiveness of Conservation Payments,"
dp-00-31, Resources For the Future.
- Baumol,William J. & Oates,Wallace E., 1988.
"The Theory of Environmental Policy,"
Cambridge University Press, number 9780521311120, September.
- Patrick Bolton & Mathias Dewatripont, 2005.
MIT Press Books,
The MIT Press,
edition 1, volume 1, number 0262025760, March.
- Gutiérrez Arnaiz, Óscar & Salas-Fumás, Vicente, 2008. "Performance standards and optimal incentives," Journal of Accounting and Economics, Elsevier, vol. 45(1), pages 139-152, March.
- Canice Prendergast, 2002. "The Tenuous Trade-off between Risk and Incentives," Journal of Political Economy, University of Chicago Press, vol. 110(5), pages 1071-1102, October.
- Wunder, Sven & Engel, Stefanie & Pagiola, Stefano, 2008. "Taking stock: A comparative analysis of payments for environmental services programs in developed and developing countries," Ecological Economics, Elsevier, vol. 65(4), pages 834-852, May.
- Holmstrom, Bengt & Milgrom, Paul, 1987.
"Aggregation and Linearity in the Provision of Intertemporal Incentives,"
Econometric Society, vol. 55(2), pages 303-28, March.
- Bengt Holmstrom & Paul R. Milgrom, 1985. "Aggregation and Linearity in the Provision of Intertemporal Incentives," Cowles Foundation Discussion Papers 742, Cowles Foundation for Research in Economics, Yale University.
- Meinzen-Dick, Ruth Suseela, ed. & Knox, Anna, ed. & Place, Frank, ed. & Swallow, Brent, ed., 2002. "Innovation in natural resource management," Food policy statements 39, International Food Policy Research Institute (IFPRI).
- Bushman, Robert M. & Indjejikian, Raffi J., 1993. "Accounting income, stock price, and managerial compensation," Journal of Accounting and Economics, Elsevier, vol. 16(1-3), pages 3-23, April.
- repec:sae:ilrrev:v:43:y:1990:i:3:p:30-51 is not listed on IDEAS
- Pagiola, Stefano & Ramirez, Elias & Gobbi, Jose & de Haan, Cees & Ibrahim, Muhammad & Murgueitio, Enrique & Ruiz, Juan Pablo, 2007. "Paying for the environmental services of silvopastoral practices in Nicaragua," Ecological Economics, Elsevier, vol. 64(2), pages 374-385, December.
- Peter Goldsmith & Rishi Basak, 2001. "Incentive Contracts and Environmental Performance Indicators," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 20(4), pages 259-279, December.
- Holmstrom, Bengt & Milgrom, Paul, 1991. "Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design," Journal of Law, Economics and Organization, Oxford University Press, vol. 7(0), pages 24-52, Special I.
- Canice Prendergast, 2000. "What Trade-Off of Risk and Incentives?," American Economic Review, American Economic Association, vol. 90(2), pages 421-425, May.
- Rigby, Dan & Woodhouse, Phil & Young, Trevor & Burton, Michael, 2001. "Constructing a farm level indicator of sustainable agricultural practice," Ecological Economics, Elsevier, vol. 39(3), pages 463-478, December.
- Claassen, Roger & Hansen, LeRoy T. & Peters, Mark & Breneman, Vincent E. & Weinberg, Marca & Cattaneo, Andrea & Feather, Peter & Gadsby, Dwight M. & Hellerstein, Daniel & Hopkins, Jeffrey W. & Johnsto, 2001. "Agri-Environmental Policy at the Crossroads: Guideposts on a Changing Landscape," Agricultural Economics Reports 33983, United States Department of Agriculture, Economic Research Service.
- Lazear, Edward P & Rosen, Sherwin, 1981.
"Rank-Order Tournaments as Optimum Labor Contracts,"
Journal of Political Economy,
University of Chicago Press, vol. 89(5), pages 841-64, October.
- Engel, Stefanie & Pagiola, Stefano & Wunder, Sven, 2008. "Designing payments for environmental services in theory and practice: An overview of the issues," Ecological Economics, Elsevier, vol. 65(4), pages 663-674, May.
- Jonathan Levin, 2003.
"Relational Incentive Contracts,"
American Economic Review,
American Economic Association, vol. 93(3), pages 835-857, June.
- 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.
- George Baker, 2002. "Distortion and Risk in Optimal Incentive Contracts," Journal of Human Resources, University of Wisconsin Press, vol. 37(4), pages 728-751.
- Pannell, David J. & Glenn, Nicole A., 2000. "A framework for the economic evaluation and selection of sustainability indicators in agriculture," Ecological Economics, Elsevier, vol. 33(1), pages 135-149, April.
- Frank Wätzold & Martin Drechsler, 2005. "Spatially Uniform versus Spatially Heterogeneous Compensation Payments for Biodiversity-Enhancing Land-Use Measures," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 31(1), pages 73-93, 05.
- 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.
- Lazear, Edward P, 1989. "Pay Equality and Industrial Politics," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 561-80, June.
- repec:ebl:ecbull:v:4:y:2007:i:41:p:1-9 is not listed on IDEAS
When requesting a correction, please mention this item's handle: RePEc:eee:ecolec:v:69:y:2009:i:1:p:126-134. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shamier, Wendy)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.