Transaction costs, communication and spatial coordination in Payment for Ecosystem Services schemes
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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 neighboring producers 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.
Banerjee , S , Cason , T N , de Vries , F P & Hanley , N 2017 , ' Transaction costs, communication and spatial coordination in Payment for Ecosystem Services schemes ' , Journal of Environmental Economics and Management , vol. 83 , pp. 68-89 . https://doi.org/10.1016/j.jeem.2016.12.005
Journal of Environmental Economics and Management
© 2016 Elsevier Inc. All rights reserved. This work has been made available online in accordance with the publisher’s policies. This is the author created, accepted version manuscript following peer review and may differ slightly from the final published version. The final published version of this work is available at: https://doi.org/10.1016/j.jeem.2016.12.005
DescriptionWe thank the European Investment Bank (EIB) for financial support under the EIB-University Research Action Programme (theme Financial and Economic Valuation of Environmental Impacts).
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