| By: |
Rupayan Pal (Indira Gandhi Institute of Development Research);
Ada Wossink (University of Manchester);
Prasenjit Banerjee (University of Manchester) |
| Abstract: |
We examine how endogenous social preferences could affect economic incentive
design to encourage biodiversity protection on private land. A 'green' farmer
may enjoy esteem from leading by example if there are few farmers who do the
right thing. In contrast a farmer without social preferences ('brown' farmer)
might merely tick the boxes and is expected to shirk from the desired
environmental actions whenever possible unless this affects their reputation.
We analyze the design of an incentive scheme that takes into account both
types of farmers ('green' or 'brown') under asymmetric information about their
true motivation. It follows that under perfect Bayesian equilibrium, the
regulator can separate out the farmer types in a two-period setting by
monitoring their voluntary conservation actions in response to payment in the
first period. The optimal mechanism would be a mixture of a facilitation
contract with small monetary incentive but high visibility to keep 'green'
farmers interested and a higher monetary-incentive contract to attract the
brown farmers. |
| Keywords: |
Mechanism Design, Social Norm, Esteem, Motivation Crowding, Signalling, Public goods, Agriculture |
| JEL: |
D03 Q57 Q58 D82 |
| Date: |
2018–02 |
| URL: |
http://d.repec.org/n?u=RePEc:ind:igiwpp:2018-006&r=res |