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Using Assurance Contract to Encourage Private Provision of Ecosystem Services: Evidence from a Pilot Field Experiment

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Listed:
  • Liu, Pengfei
  • Swallow, Stephen K.

Abstract

We generalize the dominant assurance contract (Tabarrok, 1998) to the threshold public good provision. This contract offers, to donors who agree to a minimum price, an assurance payment as compensation in the event that fundraising fails to achieve the threshold needed to fund the good. We analyze the outcomes when individuals face 1) a minimum price for eligibility for the assurance payment and 2) an assurance payment that differs from the suggested price. We report a field experiment to fund bird habitat in Rhode Island, USA. An increase of assurance payment does not necessarily increase donations; however, for online donation data, we find positive evidence that the assurance payment can increase donation probability. Assurance payments could potentially improve fundraising success and the private provision of public goods.

Suggested Citation

  • Liu, Pengfei & Swallow, Stephen K., 2015. "Using Assurance Contract to Encourage Private Provision of Ecosystem Services: Evidence from a Pilot Field Experiment," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 205384, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea15:205384
    DOI: 10.22004/ag.econ.205384
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    Keywords

    Environmental Economics and Policy; Institutional and Behavioral Economics; Land Economics/Use; Public Economics;
    All these keywords.

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