Incentive design to promote participation and uptake by landowners
Incentive design to promote participation and uptake by landowners Riccardo Scarpa WP3 Workshop: Assessing and valuing peatland ecosystem services for sustainable management18-19 January 2012, University of Leeds
Purchasing the optimal amount of conservation of anything
Hierarchy of solutions• First best: as in full information• Second best: something less than that but not as inefficient as• Third best: a flat conservation contribution to all involved. Everyone gets the same and is asked the same regardless of opportunity cost of unit of CO2e• Money for activities or for outcomes (e.g. tCO2e)?
Asymmetric Information• Landowners know the cost of conservation practices in their land• Funding bodies do not• Assessing this cost by surveying is time consuming and expensive• Need an incentive compatible mechanism through which the available money to buy conservation practices is best spent• Buy as much conservation as possible as cheaply as possible• This means purchasing the most beneficial (cost-effective) conservation practices (or tCO2e) first and the least beneficial last up to level it is convenient (benefit exceed opportunity costs)
Consequences of AI• Adverse selection (paying more than the marginal cost of provision of the tCO2e)• e.g. Net sinkers have incentive to disguise as net emitters so as to show higher benefits from entering the program• Moral hazard (some farmers do not fully comply with the program, i.e. do not act on the program land management prescriptions)• e.g. Agency gets reduced tCO2e sink and need to pay for enforcing contract compliance
Risk aversion• the length of time required by the program to produce net benefits may be long• Landowners are risk averse and loss averse• while they might find it convenient at given time to enter the program they might dread a binding commitment lasting a long time as this can compromise future opportunities• Lower amounts of affordable tCO2e are trapped or more are emitted
Contract menus and Auctions as revelation Mechanisms• Contract menu: designed to give the incentive to the right landowner to get into their most adequate conservation program, while discouraging mis- representation. They then self-select in the right program as other are less beneficial.• Auction: get landowners to put a bid (tendering) competitively amongst themselves for a limited combination of contracts practices. Competition from others should induce revelation.• Both are challenging, but there are a series of positive experience round the world (USA conservation reserve program, Australia BushTender, some German Landers)