The Impact of Information Provision on Agglomeration Bonus Performance: An Experimental Study on Local Networks

Date: 2013
By: Banerjee, Simanti
de Vries, Frans P.
Hanley, Nick
van Soest, Daan
URL: http://d.repec.org/n?u=RePEc:edn:sirdps:570&r=net
The Agglomeration Bonus (AB) is a mechanism to induce adjacent landowners to spatially coordinate their land use for the delivery of ecosystem services from farmland. This paper uses laboratory experiments to explore the performance of the AB in achieving the socially optimal land management configuration in a local network environment where the information available to subjects varies. The AB poses a coordination problem between two Nash equilibria: a Pareto dominant and a risk dominant equilibrium. The experiments indicate that if subjects are informed about both their direct and indirect neighbors’ actions, they are more likely to coordinate on the Pareto dominant equilibrium relative to the case where subjects have information about their direct neighbors’ action only. However, the extra information can only delay – and not prevent – the transition to the socially inferior risk dominant Nash equilibrium. In the long run, the AB mechanism may only be partially effective in enhancing delivery of ecosystem services on farming landscapes featuring local networks.
Keywords: Agglomeration bonus, agri-environment schemes, biodiversity conservation, ecosystem services, information spillovers, Payments for Ecosystem Services, spatial coordination,
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The Impact of Information Provision on Agglomeration Bonus Performance: An Experimental Study on Local Networks

Date: 2013-08
By: Banerjee, Simanti
de, Vries Frans
Hanley, Nicholas
van, Soest Daan
URL: http://d.repec.org/n?u=RePEc:stl:stledp:2013-09&r=net
 
The Agglomeration Bonus (AB) is a mechanism to induce adjacent landowners to spatially coordinate their land use for the delivery of ecosystem services from farmland. This paper uses laboratory experiments to explore the performance of the AB in achieving the socially optimal land management configuration in a local network environment where the information available to subjects varies. The AB poses a coordination problem between two Nash equilibria: a Pareto dominant and a risk dominant equilibrium. The experiments indicate that if subjects are informed about both their direct and indirect neighbors’ actions, they are more likely to coordinate on the Pareto dominant equilibrium relative to the case where subjects have information about their direct neighbors’ action only. However, the extra information can only delay – and not prevent – the transition to the socially inferior risk dominant Nash equilibrium. In the long run, the AB mechanism may only be partially effective in enhancing delivery of ecosystem services on farming landscapes featuring local networks.
Keywords: Agglomeration bonus, agri-environment schemes, biodiversity conservation, ecosystem services, information spillovers, Payments for Ecosystem Services, spatial coordination