Improving Spatial Coordination Rates under the Agglomeration Bonus Scheme: A Laboratory Experiment with a Pecuniary and a Non‐Pecuniary Mechanism (NUDGE)

Abstract

The Agglomeration Bonus is a Payment for Ecosystem Services scheme that focuses on achieving spatially‐coordinated land use across neighboring, privately‐owned agricultural properties. In this article, I use a laboratory experiment to examine the role of two mechanisms in incentivizing spatially‐coordinated land uses under the Agglomeration Bonus scheme on a geographical landscape resembling a local circular network. The first mechanism is pecuniary in format and varies the payoffs associated with coordination, while the second is a non‐pecuniary mechanism that varies the amount of information participants have about the land use choices of other participants, specifically of those from another community. The payoff variation is implemented as a within‐subject treatment and the information treatment in a between‐subject format. The results indicate that the coordination rates are higher if payments associated with coordination are higher. Also, having information about outcomes of the Agglomeration Bonus scheme from another community improves spatial coordination rates in both communities.