Spatial coordination in Payment for Environmental Service schemes: can we nudge the agglomeration bonus to enhance its effectiveness?

The environmental benefits from Payment for Environmental Service (PES) schemes can often be enhanced if farmers can be induced to enrol land in a spatially-coordinated manner. This is because the achievement of many targets for biodiversity conservation policy or water quality improvements are increasing in the spatial connectedness of enrolled land. One incentive mechanism which has been proposed by economists to achieve such connectedness is the Agglomeration Bonus (the AB). There has also been an interest within the literature on PES design in using “nudges” to enhance participation and performance. In this paper, we test whether a specific nudge in the form of information provided to participants on the environmental performance of their group can improve participation and spatial coordination, and/or enhance the impacts of the AB. We design a lab experiment whereby the environmental benefits generated by a PES scheme are generated by real contributions to an environmental charity. We argue that this mirrors the situation in actual PES schemes where participants derive utility from contributing to the environmental outputs of the scheme, in addition to the monetary payoffs they receive. Our results confirm the environmental benefits of the AB, but the impact of our nudge is much less environmentally effective. Interestingly, we find that the nudge does not significantly supercharge the AB, and can even worsen its performance