Optimal Conservation Programs, Asymmetric Information and the Role of Fixed Costs

Carmen Arguedas, Daan P. van Soest

Research output: Contribution to journalArticleScientificpeer-review

13 Citations (Scopus)

Abstract

An increasing number of environmental protection programs offers financial compensation to farmers in exchange for conservation services. Incentive-compatible contracts can be designed to mitigate excess compensation, but the extant literature suggests that outcomes are always second-best so that other instruments (such as conservation auctions) may be preferred. We argue that the claim regarding the first-best solution never being incentive-compatible is correct if all conservation costs are variable in nature; if there are fixed costs too, the first-best compensation scheme may be incentive-compatible after all. Given the relevance of fixed costs in conservation issues, we conclude that incentive-compatible contracts should be given a second chance as a policy measure to induce conservation.

Original languageEnglish
Pages (from-to)305-323
Number of pages19
JournalEnvironmental and Resource Economics
Volume50
Issue number2
DOIs
Publication statusPublished - Oct 2011

Keywords

  • Asymmetric information
  • Mechanism design
  • Payments for ecosystem services

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