nep-res New Economics Papers
on Resource Economics
Issue of 2018‒07‒09
one paper chosen by
Maximo Rossi
Universidad de la República

  1. Social rewards and the design of voluntary incentive mechanism for biodiversity protection on farmland By Rupayan Pal; Ada Wossink; Prasenjit Banerjee

  1. 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

This nep-res issue is ©2018 by Maximo Rossi. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.