Performance of Agglomeration Bonuses in Conservation Auctions: Lessons from a Framed Field Experiment

• Published in: Environmental & resource economics Vol. 73; no. 3; pp. 843 - 869
• Main Authors: Liu, Zhaoyang, Xu, Jintao, Yang, Xiaojun, Tu, Qin, Hanley, Nick, Kontoleon, Andreas
• Format: Journal Article
• Language: English
• Published: Dordrecht Springer Netherlands 01.07.2019; Springer Nature B.V
• Subjects: Agglomeration; Auctions; Bidding; Bids; Bonus systems; Bonuses; China; Conservation; Contracts; Coordination; Cost analysis; Cost control; cost effectiveness; Design; Economic Policy; Economics; Economics and Finance; Ecosystem services; Ecosystems; Efficacy; Environmental Economics; Environmental Law/Policy/Ecojustice; Environmental Management; Experiments; field experimentation; forest land; forest policy; Innovations; Laboratories; laboratory experimentation; land ownership; Owners; Payments; Research methodology; Riparian buffers; Rural areas; Rural communities; Students; China; Q57; Q23; Agglomeration bonus; Policy impact evaluation; Payments for ecosystem services; Framed field experiment; Conservation auction; C90; C72
• ISSN: 0924-6460; 1573-1502
• DOI: 10.1007/s10640-019-00330-1

The incorporation of an agglomeration bonus payment to encourage spatial coordination in auction mechanisms to allocate payments for ecosystem services (PES) contracts has been explored as a promising innovation that could enhance the effectiveness of PES schemes. Empirical evidence on the performance of this particular design feature is scant, and almost exclusively derived from laboratory experiments using student subjects. This study reports results from a framed field experimental auction allocating PES contracts with and without agglomeration bonus payments using actual forest land owners in rural China as subjects. We find tentative evidence that, in a PES auction that provides agglomeration bonuses, subjects tend to bid less in anticipation of receiving bonus payments when their neighbours are also successful in the auction. In addition, we have mixed findings as to whether the agglomeration bonus is able to induce a bidding pattern in favour of contiguous conservation. The two sets of results convey some encouraging signals of the theoretically postulated cost-effectiveness and conservation efficacy of the agglomeration bonus. Further research from the actual field is warranted in light of the policy significance of this innovative incentive mechanism.