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Transaction costs, communication and spatial coordination in Payment for Ecosystem Services Schemes

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  • Banerjee, Simanti
  • Cason, Timothy N.
  • de Vries, Frans P.
  • Hanley, Nick

Abstract

Agricultural producer participation and spatial coordination of land use decisions are key components for enhancing the effective delivery of ecosystem services from private land. However, inducing participation in Payment for Ecosystem Services schemes for coordinating land management choices is challenging from a policy design perspective owing to transaction costs associated with participation. This paper employs a laboratory experiment to investigate the impact of such costs on participation and land use in the context of an Agglomeration Bonus (AB) scheme. The AB creates a coordination game with multiple Nash equilibria related to alternative spatially-coordinated land use patterns. The experiment varies transaction costs between two levels (high and low), which affects the risks and payoffs of coordinating on the different equilibria. Additionally, an option to communicate is implemented between neighbors arranged on a local network to facilitate spatial coordination. Results indicate a significant difference in participation and performance under high and low transaction costs, with lower uptake and performance when transaction costs are high. These effects are, however, impacted by transaction costs faced in the past. Communication improves both AB participation rates and performance with the effect being greater for participants facing high transaction costs.

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  • Banerjee, Simanti & Cason, Timothy N. & de Vries, Frans P. & Hanley, Nick, 2017. "Transaction costs, communication and spatial coordination in Payment for Ecosystem Services Schemes," Journal of Environmental Economics and Management, Elsevier, vol. 83(C), pages 68-89.
  • Handle: RePEc:eee:jeeman:v:83:y:2017:i:c:p:68-89
    DOI: 10.1016/j.jeem.2016.12.005
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    Cited by:

    1. Laure Kuhfuss & Raphaële Préget & Sophie Thoyer & Frans P. de Vries & Nick Hanley, 2017. "Nudging Participation and Spatial Agglomeration in Payment for Environmental Service Schemes," Discussion Papers in Environment and Development Economics 2017-11, University of St. Andrews, School of Geography and Sustainable Development.
    2. Benjamin Ouvrard & Anne Stenger, 2017. "Nudging with heterogeneity in terms of environmental sensitivity : a public goods experiment in networks," Working Papers of BETA 2017-36, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    3. Oleg Sheremet & Enni Ruokamo & Artti Juutinen & Rauli Svento & Nick Hanley, 2017. "Incentivising Participation and Spatial Coordination in Payment for Ecosystem Service Schemes:Forest Disease Control Programs in Finland," Discussion Papers in Environment and Development Economics 2017-13, University of St. Andrews, School of Geography and Sustainable Development.

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