Incentives and Nudges for Environmental Stewardship on Farmland: A Lab Experiment on the Agglomeration Bonus

Payment for Ecosystem Services (PES) schemes have an important role in generating ecosystem services conservation and restoration benefits through adoption of various land uses on private agricultural property. These policies provide financial compensation to producers for benefits delivered over and above a baseline level and for any income losses arising from the land use change (Hanley et al. 2012). Examples of PES schemes include the Conservation Reserve Program (CRP) in the U. S., the Pago por Servicios Ambientales in Costa Rica and the Stewardship Schemes in the U. K. to name a few

Complexity and Efficiency in Conservation Auctions: Evidence from a Laboratory Experiment

Payment-for-ecosystem-services (PES) schemes financially compensate producers for implementing various conservation practices on their properties that generate ecosystem-service benefits for society. Conservation auctions have been adopted in several PES programs such as the Conservation Reserve Program (CRP) (Hellerstein et al., 2015) and involve producers submitting bids for one or more environmental practices for consideration in the auction

Strategic interactions and information exchange on networks : an agent based simulation model of landowner behaviour in conservation incentive schemes (extended abstract)

Starting with data obtained from human-subject experiments to investigate farmers' responses to a conservation incentive scheme, we derive a cognitive model of the farmers' decision-making behaviour, and implement this model within an agent-based simulation of farmers interacting via different types of social network. We find that the outcome of the scheme in early time periods is improved by providing more information to farmers. However, changing the structure of the social network by which the information is provided has no effec

Role of Information and Communication on Spatial Conservation Auction Performance: Evidence from a Laboratory Experiment

Policy makers such as the USDA are interested in producers voluntarily adopting pro-environmental land use practices on their properties as these land uses deliver various ecosystem service benefits. As a result, they have implemented incentive based policies such as the Conservation Reserve Program (CRP) (Hellerstein et al., 2015). The CRP involves a reverse auction in which producers submit bids for adopting different land use practices. In running these auctions, agencies are interested in both cost-effectiveness i.e. procuring land use projects which yield the highest level of ecosystem service benefits for the money spent and specific environmental goals. One key goal is project procurement involving the same land use implemented on neighboring properties/parcels or those within some distance of each other. Such spatial contiguity is important as coordinated land management can magnify the production of different ecosystem service benefits such as water pollution reduction, lower habitat fragmentation and enhanced biodiversity conservation, and increased pollination services to name a few

An Iterative Auction for Spatially Contiguous Land Management: An Experimental Analysis

Tackling the problem of ecosystem services degradation is an important policy challenge. Different types of economic instruments have been employed by conservation agencies to meet this challenge. Notable among them are Payment for Ecosystem Services (PES) schemes that pay private landowners to change land uses to pro-environmental ones on their properties. This paper focuses on a PES scheme – an auction for the cost-efficient disbursal of government funds for selection of spatially contiguous land management projects. The auction is structured as an iterative descending price auction where every bid is evaluated on the basis of a scoring metric – a benefit cost ratio. The ecological effectiveness and economic efficiency of the auction is tested with data generated from lab experiments. These experiments use the information available to the subjects about the spatial goal as the treatment variable. Analysis indicates that the information reduces the cost-efficiency of the auction. Experience with bidding also has a negative impact on auction efficiency. The study also provides an analysis of the behavior of winners and losers at the final auction outcome. Winners and losers are found to have significantly different behavior with winners bidding much higher than their costs than losers.Ecosystem Services, economic experiments, auctions, spatial contiguity, Environmental Economics and Policy, Institutional and Behavioral Economics, Land Economics/Use, Resource /Energy Economics and Policy, Q,

The Agglomeration Vickrey Auction for the promotion of spatially contiguous habitat management: Theoretical foundations and numerical illustrations

There is much interest among economists and policy makers in the use of reverse auctions to purchase habitat conservation on private lands as a mechanism for minimizing public expenditures to achieve desired conservation outcomes. Examples are the Conservation Reserve Program (US) and Environmental Stewardship Scheme (UK). An important limitation of these auctions as implemented to date is that there is no explicit consideration of the spatial pattern of participation in the evaluation of bids. In this study we present the structure of a simple auction – the Agglomeration Vickrey Auction that implements a Vickrey-Clarke-Groves mechanism. The auction is designed to attain conservation goals through specific spatial patterns of land management while minimizing the total budgetary cost. We present the theoretical structure of the AVA and provide simple numerical examples to illustrate the effectiveness of the mechanism. We conclude with a section documenting the experiments that are to be conducted as a part of the future research on this study.auctions, environmental conservation, spatial, Environmental Economics and Policy, Land Economics/Use,

Understanding the Economic Characteristics of a Developing Country Marine Fishery— A Case Study of the Digha-Shankarpur Fishery in Eastern India

Fish serves as a primary protein source for large sections of the global population and as a main source of income for coastal populations, particularly those based in developing nations. In this study, we present results of a survey conducted with fishers belonging to the Digha-Shankarpur marine fishery in the eastern Indian state of West Bengal (Figure 1). The principle motivation of this research stems from the fact that resource management in developing nations is challenged by the presence of extreme poverty in the fishing community. Also, local governments often lack the necessary financial resources and personnel needed for periodic assessment of the biological and economic health of the fishery, i.e., both the ecosystem and the community that depends on it. Additionally, managing marine fisheries is challenging because as common pool resources, these natural resources are subject to the tragedy of the commons. Thus, long term sustenance of this fishery and livelihoods of people dependent on it requires an understanding of the structure of the fishery, and the economic and behavioral motivations driving fishing behavior in an area grappling with abject poverty. To the best of our knowledge, this is the first study of fishing and economic behavior in the region using primary data (surveys and interviews) collected from 291 fishers from 15 fishing hamlets

Successful Extension Meetings and Innovative Economic Research: Grain Marketing Simulations

While grain marketing is considered a difficult challenge facing producers every year, it represents a very important component for producers to convert their bushels into dollars and ensure farm survival. Grain marketing involves both strategic behavior and knowledge of the grain market. Local and global supply and demand conditions, grain storage costs, transportation costs etc. present constantly changing risk and reward opportunities for producers. Efficient training and consistent monitoring of the market can help producers reduce risk (i.e., reduce the chance of farm failure) by making good use of pricing opportunities. Since these concepts may not necessarily be intuitive and strategic behavior can often be cognitively taxing, the University of Nebraska- Lincoln has developed an interactive grain marketing simulation game, called Marketing in a New Era (MINE) for this purpose. The first section of this article describes how the MINE simulation game can fit Extension meetings and help Specialists communicate grain marketing principles. The second section describes two example activities from the pre -harvest and post-harvest version of MINE. Screenshots from the simulation interface are included in order to portray how MINE works and why its design enhances the learning process. In the last section, a research idea is proposed that combines Experimental Economics techniques with Grain Marketing intuition, and uses MINE simulation as an experimental tool

Successful Extension Meetings and Innovative Economic Research: Grain Marketing Simulations

While grain marketing is considered a difficult challenge facing producers every year, it represents a very important component for producers to convert their bushels into dollars and ensure farm survival. Grain marketing involves both strategic behavior and knowledge of the grain market. Local and global supply and demand conditions, grain storage costs, transportation costs etc. present constantly changing risk and reward opportunities for producers. Efficient training and consistent monitoring of the market can help producers reduce risk (i.e., reduce the chance of farm failure) by making good use of pricing opportunities. Since these concepts may not necessarily be intuitive and strategic behavior can often be cognitively taxing, the University of Nebraska- Lincoln has developed an interactive grain marketing simulation game, called Marketing in a New Era (MINE) for this purpose. The first section of this article describes how the MINE simulation game can fit Extension meetings and help Specialists communicate grain marketing principles. The second section describes two example activities from the pre -harvest and post-harvest version of MINE. Screenshots from the simulation interface are included in order to portray how MINE works and why its design enhances the learning process. In the last section, a research idea is proposed that combines Experimental Economics techniques with Grain Marketing intuition, and uses MINE simulation as an experimental tool

Safety First Risk Preferences and Post-Harvest Grain Marketing A Context-rich Lab Experiment

Improving our understanding of the influence of risk- preferences on decision making represents an important objective for understanding behavior, designing policy and decision making theory. A natural place this problem persists is in the marketing of grain (Kastens and Dhuyvetter, 1999). Grain marketing research has primarily focused on the use of different marketing techniques that result in lower price risk and, therefore, lower-income risk (Musser, Patrick, Eckman, 1996). However, the extent to which the theoretical findings from these studies are relevant to real-world applications is not clear (Brorsen and Irwin, 1996; Garcia and Leuthold, 2004). While reducing income risk is desired, this approach overlooks the influence of producer risk preferences when marketing grain. In this article we evaluate the role of producer risk preferences, specifically Safety-First (SF)risk preferences (Roy 1952) on grain marketing decision behavior with emphasis on post-harvest grain marketing. The idea behind SF is that individuals consider outcomes below a particular value as a disaster. Each individual would have his/her own disaster level. For farmers, a disaster could mean losing the farm or losing money in a particular crop year. Producers exhibiting SF risk preferences will make on-farm decisions in a way to minimize the probability of achieving the disaster. For example, Fishburn (1997) found decision-makers do associate risk with failure to meet a target return. Heady (1952) presented that farmers exhibit SF preferences by allocating acres to particular crops in an attempt to minimize the probability of income falling below a disaster level defined as production costs. Given this context, we used a grain marketing simulation game to conduct a context-rich economic experiment with university student subjects to evaluate the role of SF risk preferences on grain marketing decision behavior. For our economic experiment and given our focus on SF risk preferences, we relied on the work by Levy and Levy (2009) to identify whether experimental subjects exhibit SF risk preferences. This information is then combined with post-harvest grain marketing decisions made during the experiment within the simulated grain marketing interphases where subjects create contracts for spot or future grain delivery under four different grain price scenarios