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

Andreas Kontoleon,Jintao Xu,Zhaoyang Liu,Qin Tu,Xiaojun Yang,Nick Hanley

doi:10.1007/s10640-019-00330-1

Abstract

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.

Highlights

With the rapid proliferation of payments for ecosystem service (PES) schemes worldwide, academics and policy makers have been interested in improvements to various design facets of PES
Our study aimed to address this need by undertaking perhaps the first such framed field experiment with actual ecosystem services (ES) suppliers in which we tested the performance of the agglomeration bonus in a simulated forest-based PES auction
After dropping the highest 10% of bids, we find that the agglomeration bonus leads to lower bids for plots with more neighbours, which is in line with Hypothesis 2

Summary

Introduction

With the rapid proliferation of payments for ecosystem service (PES) schemes worldwide, academics and policy makers have been interested in improvements to various design facets of PES. Our study aimed to address this need by undertaking perhaps the first such framed field experiment with actual ES suppliers in which we tested the performance of the agglomeration bonus in a simulated forest-based PES auction. This study provides one of the first attempts to provide an ex ante experimental investigation of the viability and performance of the agglomeration bonus in PES auctions in the context of rural China, in the sense that we draw lessons about the ability of land managers to understand and respond to the complex incentive mechanisms.

Theoretical Framework

Experimental Design and Procedures

Results

Conclusion