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Should conservation contracts include incentive payments and also be put up for tender?

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  • Schilizzi, Steven
  • Latacz-Lohmann, Uwe

Abstract

In order to maximize efficiency, should conversation contracts include incentive payments and also be put up for tender? This work uses laboratory experiments to investigate this question. We find that there exists an optimal share of performance payment which yields maximum total stewardship effort and expected environmental outcome. While cost-effectiveness is maximized with the totality of payments linked to outcomes, it comes at the cost of reduced participation. Tendering such contracts yields additional benefits in terms of effort extraction and cost-effectiveness, but these benefits rapidly decline with the share of performance payment. Combining high shares of performance payments with tendering runs the risk of falling far short of the environmental target.

Suggested Citation

  • Schilizzi, Steven & Latacz-Lohmann, Uwe, 2014. "Should conservation contracts include incentive payments and also be put up for tender?," 2014 Conference (58th), February 4-7, 2014, Port Maquarie, Australia 165873, Australian Agricultural and Resource Economics Society.
  • Handle: RePEc:ags:aare14:165873
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    File URL: http://purl.umn.edu/165873
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    References listed on IDEAS

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    1. Costello, Christopher & Polasky, Stephen, 2004. "Dynamic reserve site selection," Resource and Energy Economics, Elsevier, vol. 26(2), pages 157-174, June.
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    More about this item

    Keywords

    Conservation tenders; auctions; incentive contracts; agricultural policy; market-based instruments; experimental economics; Agricultural and Food Policy; International Relations/Trade; C92; D44; D82; D86; H57; Q24; Q28;

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
    • Q24 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Land
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy

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