Biodiversity and the design of result-based payments: Evidence from Germany

Paying farmers for measured outcomes—i.e., results, not actions—is promoted for raising the effectiveness and flexibility of efforts to address agriculture's environmental damages. One key design choice is how exactly to reward these measured results. Continuous rewards are possible, yet, in practice, observed species outcomes have been rewarded using a single threshold (compliant/not compliant) or, to move toward continuity, a few thresholds (e.g., low/medium/high). We assess whether more continuous rewards—specifically, multiple target thresholds for plant species—raise bird diversity. We study a pilot scheme in Germany's federal state of Lower Saxony, where an incentive with one threshold is the baseline. Using citizen-science bird data (offering over 6.7m entries across 16 years) and staggered difference-in-differences estimation, we find that the pilot scheme using multiple target thresholds for plant species raised bird diversity versus the single-threshold baseline (same lower threshold, but no further thresholds). Our results show the benefits of even small shifts in incentive design.