Can collective conditionality improve agri-environmental contracts? From lab to field experiments

Abstract

Individual subsidy payments that are conditional on a collective contribution threshold could provide a viable resolution to the insufficient and dispersed adoption of agri-environmental contracts aiming at attaining environmental quality targets. Indeed, in a decontextualized laboratory experiment based on a threshold public goods game (TPGG), Le Coent et al. (2014) offer promising results regarding a conditional subsidy compared to an unconditional subsidy (i.e., the standard subsidy in existing agri-environmental schemes). In this article, we propose to improve the external validity of these results by transposing this laboratory experiment to a lab-in-the-field setting with farmers. To do so, we carry out a contextualized lab-in-the-field experiment with farmers by explicitly mentioning agri-environmental contracts and water quality. Our results show that farmers cooperate even more successfully than students and sustain more efficient outcomes over time. In a between-subject comparison, our results indicate that average group contributions under the conditional and the unconditional subsidy mechanisms are not significantly different. We find that this is due to two behavioral responses (perceived risks and initial beliefs on others’ contributions) in the conditional subsidy treatment, which show to have opposing effects on contributions that cancel each other out. The conditional incentive mechanism thus shows promising potential as a tool for agri-environmental policy since it avoids the pay-for-nothing trap of the unconditional subsidy mechanism without discouraging contributions.