Alternative payment approaches for biodiversity conservation in agriculture

Biodiversity conservation and sustainable use policies implemented in OECD countries could be made more environmentally effective and cost-effective. Several policy innovations could change this, however. To test this, a theoretical framework was developed to describe farmers’ participation in government payment programmes that enhance semi-natural wildlife habitats on farmland. The types of payments analysed here include: uniform payments; three types of conservation auctions with environmental targeting; uniform payment with environmental targeting; and two types of differentiated payments with environmental targeting. Quantitative results show that uniform payments are less efficient than other payment types, and that auctions with environmental targeting are the most cost-effective option. However, if farmers have knowledge of the environmental value of their offer, the cost-effectiveness of auctions decreases because they tend to increase their bids to benefit from this information rent (overcompensating income forgone). Adding environmental targeting to the uniform payment policy greatly improves the cost-effectiveness of uniform payment. The analysis clearly shows that, when targeted payments are implemented, the gains from environmental targeting are large and exceed the increase in policy-related transaction costs.