Protecting the Environment

Abstract

The role of extrinsic versus intrinsic motivation in environmental decisions remain unresolved. We exploit data from a lab-in-the-field experiment to analyze the role of extrinsic and intrinsic incentives in shaping individual demand for a payment for environmental services (PES) program in São Paulo, Brazil. The lab-in-the-field experiment is a theoretical incentive program that offers annual payments to landholders in vulnerable watersheds for either conserving and/or restoring trees surrounding springs on their land to preserve and improve local water quality. Our findings suggest that, in contrast with predictions from rational choice theory, individuals’ responses to incentives are not monotonic. Landholders who took part in our lab-in-the-field experiment were randomly assigned to four offer levels and asked a double-bounded contingent valuation question to elicit a willingness to accept value. Landholders were less likely to accept the higher offers compared to the lowest offers. Given that the rational choice model fails to fully account for the role of incentives in shaping demand for PES, we then look at the interaction of the randomized incentive offers and individuals’ initial intrinsic motivations. We find that, while high monetary incentives crowd in demand of progovernment landholders, they crowd out demand of proenvironment and prosocial landholders. Overall, we find much evidence of heterogeneous responses.