Abstract
We examine how social preferences affect the workings of voluntary green payment schemes and show that a regulator could use facilitation services along with a social reward to generate better ecological outcome at less cost by exploiting a farmer’s social preferences to gain a green social-image/reputation. To motivate our model, we first present the results of an incentivized elicitation survey in Scotland which shows that there is a social norm of biodiversity protection on private land among farmers. Moreover, the results of a discrete choice experiment reveal that farmers are willing to give up economic rents for more publicity of their conservation activities; this confirms the relevance of reputational gain in the context of green payment schemes. Our model assumes two types of farmers, green and brown, with a green farmer taking more biodiversity protection actions than a brown farmer. We design a menu of contracts that offers both monetary incentives and non-monetary incentives (a facilitation service with social reward) to induce both type of farmers to join the scheme and to exert first-best levels (i.e., symmetric information levels) of action. Results show that under asymmetric information the regulator can implement the symmetric information equilibrium levels of biodiversity protection actions with only non-monetary incentives for the green farmer and only monetary incentives for the brown farmer. This implies that a regulator can ensure better environmental outcomes, at a lower cost, by exploiting farmers’ social preferences and by offering non-monetary incentives.
Highlights
A burgeoning stream of studies investigates the role of personal and social norms in farmers’ environmental management behaviour
Lemma 9 Suppose that Assumptions 1–5 hold true and the regulator offers the menu of contracts {(tFG, F),}, where F indicates non-monetary incentives, N indicates no non-monetary incentive, and tFG(≥ 0) and tNB (≥ 0) denote monetary transfers under F and N, respectively, to implement the symmetric information level optimal action
We examined how social preferences affect the workings of voluntary green payment schemes
Summary
A burgeoning stream of studies investigates the role of personal and social norms in farmers’ environmental management behaviour (for an overview see Dessart et al 2019). Analysis of farmers’ underlying motives could help to propose policy directions to move farmers from ‘tick box compliance’ (with regulatory requirements of voluntary agri-environmental schemes) to a committed environmental stewardship with better and more sustained ecological outcomes (Lokhorst et al 2011) Such an analysis is reported in what follows. Heterogeneity in Farmers’ Social Preferences and the Design Such a menu of contracts is useful to resolve adverse selection problems: a regulator should not pay a green farmer to avoid motive crowding-out and should not pay a brown farmer who wants to ‘buy’ reputation (see e.g., Bénabou and Tirole 2006; Ariely et al 2009; Bowles and Hwang 2008; Banerjee and Shogren 2012; Arce 2013). The policy implications with reference to the debate on the post-2020 reform of the Common Agricultural Policy in the EU
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