Transaction costs, communication and spatial coordination in Payment for Ecosystem Services schemes

Simanti Banerjee, Timothy N. Cason, Frans P. de Vries, Nick Hanley

    Research output: Contribution to journalArticlepeer-review

    22 Citations (Scopus)


    Agricultural producer participation and spatial coordination of land use decisions are key components for enhancing the effective delivery of ecosystem services from private land. However, inducing participation in Payment for Ecosystem Services schemes for coordinating land management choices is challenging from a policy design perspective owing to transaction costs associated with participation. This paper employs a laboratory experiment to investigate the impact of such costs on participation and land use in the context of an Agglomeration Bonus (AB) scheme. The AB creates a coordination game with multiple Nash equilibria related to alternative spatially-coordinated land use patterns. The experiment varies transaction costs between two levels (high and low), which affects the risks and payoffs of coordinating on the different equilibria. Additionally, an option to communicate is implemented between neighboring producers arranged on a local network to facilitate spatial coordination. Results indicate a significant difference in participation and performance under high and low transaction costs, with lower uptake and performance when transaction costs are high. These effects are, however, impacted by transaction costs faced in the past. Communication improves both AB participation rates and performance with the effect being greater for participants facing high transaction costs.
    Original languageEnglish
    Pages (from-to)68-89
    Number of pages22
    JournalJournal of Environmental Economics and Management
    Early online date21 Dec 2016
    Publication statusPublished - May 2017


    • Agglomeration Bonus
    • Payments for Ecosystem Services Schemes
    • Content analysis
    • Coordination games
    • Lab experiments
    • Local networks
    • Strategic uncertainty


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