Transaction costs, communication and spatial coordination in payment for ecosystem services schemes

Banerjee, S., Cason, T. N., de Vries, F. P. and Hanley, N. (2017) Transaction costs, communication and spatial coordination in payment for ecosystem services schemes. Journal of Environmental Economics and Management, 83, pp. 68-89. (doi: 10.1016/j.jeem.2016.12.005)

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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.

Item Type:Articles
Status:Published
Refereed:Yes
Glasgow Author(s) Enlighten ID:Hanley, Professor Nicholas
Authors: Banerjee, S., Cason, T. N., de Vries, F. P., and Hanley, N.
College/School:College of Medical Veterinary and Life Sciences > School of Biodiversity, One Health & Veterinary Medicine
Journal Name:Journal of Environmental Economics and Management
Publisher:Elsevier
ISSN:0095-0696
ISSN (Online):1096-0449
Published Online:21 December 2016
Copyright Holders:Copyright © 2016 Elsevier Inc.
First Published:First published in Journal of Environmental Economics and Management 83: 68-89
Publisher Policy:Reproduced in accordance with the publisher copyright policy

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