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Coordination and Inequalities in Agglomeration Bonus Payments

Payments for ecosystem services are increasingly used to foster biodiversity on private land. Yet, most payments focus to encourage action at the farm-level only, while some elements of biodiversity can be more effectively encouraged if conservation is targeted at the landscape-level. The latter requires spatial coordination of beneficiaries. Parkhurst et al. (2002) & others have proposed an agglomeration bonus (AB) policy to solve such coordination problems. So far, there is no evidence on the effectiveness of an AB when land owners are heterogeneous, e.g. differ in their opportunity cost of conservation. We use a coordination game with asymmetric payoffs to analyze the ability of an individual payment (similar to the AB) to achieve coordination among heterogeneous players. In addition, we test if side payments (i.e. a mechanism that allows a re-negotiation of payoffs) are able to improve coordination. The results help to improve the effectiveness of AB policies. This is joint work with Elisabeth Gsottbauer (University Innsbruck), Frank Wätzold (TU Cottbus) and Martin Drechsler (UFZ).

This project has been successfully completed already.