Incentivizing coordination in the adoption of sustainable land use when costs are heterogeneous: An economic experiment

Abstract

Studies on the design of agri-environmental payments have proposed agglomeration payments to address cases where coordination is required to achieve sustainable outcomes, and differentiated instead of uniform payments to address cost heterogeneity of land users. In this paper, we combine the two. We develop an economic experiment to test the environmental effectiveness, cost-effectiveness, and equity effect of differently designed agglomeration payments in the context of the sustainable use of peatlands in Switzerland. We find no difference between the environmental effectiveness of differentiated and uniform agglomeration payments. In terms of costeffectiveness, differentiated payments perform best. However, income inequality is higher under differentiated payments.