Social rewards and the design of voluntary incentive mechanism for biodiversity protection on farmland

Abstract:
This work examines how social preferences affect standard economic incentive mechanism designed to encourage biodiversity protection on private land. We incorporate the interplay between honour, stigma, and social norms that arise from farmers’ behaviours and their interaction with financial instruments into formal incentive mechanism. People vary in social preferences and some farmers may engage in conservation activities merely to ‘buy’ a good social reputation rather than for the sake of the public good as such. The policy maker’s dilemma is that of asymmetric information; she does not know the specific motivation to engage in the conservation activity of the individual farmer. She does not want to pay a green farmer (with social preferences) to crowd out his incentive; she also does not want to pay extra money to a brown farmer (social reputation seeker). We investigate an optimal voluntary incentive mechanism design that specifies a monetary-transfer-to-efforts menu that gets the best out of both types of farmers. Our results show: (i) social reward can induce the ‘early birds’ who used to be green even before other farmers start doing biodiversity protection; and (ii) the policy maker can save some public fund as brown farmers want to buy reputation.

About the speaker
Banerjee is a Lecturer/Assistant Professor in Economics at the University of Manchester. He earned his PhD in Economics at University of Wyoming. His research is motivated by interdependencies between human behaviour and mechanisms/institutions designed for environmental protection. His work includes conservation and management of natural resources, behavioural impact on environmental policies, designing mechanisms/institutions for environmental protection, and environmental regulation. He has published in internation peer reviewed journals including—Journal of Environmental and Resource Economics, Journal of Economic Behavior and Organization, Economics Letters, and Environmental and Resource Economics.