University of Stirling


Simanti Banerjee, Silvia Secchi, Joseph Fargione, Stephen Polasky & Steven Kraft (August 2013)
How to sell ecosystem services: a guide for designing new markets
Frontiers in Ecology and the Environment 11(6), 397-304 [DOI]

Payments for ecosystem services (PES) can improve environmental quality by aligning the incentives of individual landowners with societal interests in providing valuable ecosystem services such as carbon storage, water quality, flood control, and wildlife habitat. However, for this potential to be realized, many institutional details and technical challenges must be addressed. In this review, we discuss six critical issues for creating effective PES markets: using the appropriate type of market institution, defining suitable spatial and temporal scales for the market, promoting additionality (avoiding payments for services that would have been provided even in the absence of payments) so that payments result in increased services, offering incentives for projects that generate multiple ecosystem services,  considering practice-based versus performance-based payments, and eliminating opportunities for strategic behavior aimed at “gaming the system”. We illustrate these issues with an example of how PES could be applied to floodplain restoration.


Simanti Banerjee, Anthony M. Kwasnica & James S. Shortle
(December 2012)

Agglomeration Bonus in Local Networks: A laboratory examination of spatial coordination failure
Ecological Economics 84, 142-152 [DOI]

The Agglomeration Bonus (AB)– a subsidy mechanism can incentivize neighboring landowners to spatially coordinate their land use decisions for effective provision of ecosystem services such as biodiversity protection. In this paper we explore individual AB performance on a local network in a laboratory setting. In our experiments, we vary the local network size while keeping the number of neighbors for each player same. Results suggest better AB performance and greater spatial coordination in smaller groups relative to bigger ones. In bigger groups however we observe localized areas of coordinated land use choices which indicate partial AB effectiveness.


Nick Hanley, Simanti Banerjee, Gareth D. Lennox & Paul R. Armsworth (February 2012)
How should we incentivize landowners to produce more biodiversity?
Oxford Review of Economic Policy 28(1), 93-113 [DOI]
Link to Working paper version

Globally, much biodiversity is found on private land. Acting to conserve such biodiversity thus requires the design of policies which influence the decision-making of farmers and foresters. In this paper, we outline the economic characteristics of this problem, before reviewing a number of policy options such as conservation auctions and conservation easements. We then discuss a number of policy design problems, such as need for spatial coordination and the choice between paying for outcomes rather than actions, before summarizing what the evidence and theory developed to date tells us about those aspects of biodiversity policy design which need careful attention from policy makers and environmental regulators.


Simanti Banerjee,  Anthony M Kwasnica & James S Shortle (2011)
An Iterative Auction for Spatially Contiguous Land Management
♦ Link to working paper version

Tackling the problem of ecosystem services degradation is an important policy challenge. Different types of economic instruments have been employed by conservation agencies to meet this challenge. Notable among them are Payment for Ecosystem Services (PES) schemes that pay private landowners to change land uses to pro-environmental ones on their properties. This paper focuses on a PES scheme – an auction for the cost-efficient disbursal of government funds for selection of spatially contiguous land management projects. The auction is structured as an iterative descending price auction where every bid is evaluated on the basis of a scoring metric – a benefit cost ratio. The ecological effectiveness and economic efficiency of the auction is tested with data generated from lab experiments. These experiments use the information available to the subjects about the spatial goal as the treatment variable. Analysis indicates that the information reduces the cost-efficiency of the auction. Experience with bidding also has a negative impact on auction efficiency. The study also provides an analysis of the behavior of winners and losers at the final auction outcome. Winners and losers are found to have significantly different behavior with winners bidding much higher than their costs than losers.


Adam Kleczkowski, Ciaran Ellis, Dave Goulson, Frans P. de Vries & Nick Hanley (August 2013)
Ecological-economic modelling of interactions between  wild and commercial bees and pesticide use
♦ Link to working paper version

The decline in extent of wild pollinators in recent years has been partly associated with changing farm practices and in particular with increase of pesticide use. In this paper we combine ecological modelling with economic analysis of a single farm output under the assumption that both pollination and pest control are essential inputs. We show that
the drive to increase farm output can lead to a local decline in the wild bee population. Commercial bees are often considered an alternative to wild pollinators, but we show that their introduction can lead to further decline and finally local extinction of wild bees. The transitions between different outcomes are characterised by threshold behaviour and are potentially difficult to predict and detect in advance. Small changes in economic (input prices) and ecological (wild bees carrying capacity and effect of pesticides on bees) can move the economic-ecological system beyond the extinction threshold. We also show that increasing the pesticide price or decreasing the commercial bee price might lead to reestablishment of wild bees following their local extinction. Thus, we demonstrate the importance of combining ecological modelling with economics to study the provision of ecosystem services and to inform sustainable management of ecosystem service providers.


Simanti Banerjee,  Frans P. de Vries,  Nick Hanley & Daan van Soest (August 2013)
The Impact of Information Provision on Agglomeration Bonus Performance: An Experimental Study on Local Networks
Link to working paper version

The Agglomeration Bonus (AB) is a mechanism to induce adjacent landowners to spatially coordinate  their land use for the delivery of ecosystem services from farmland. This paper uses laboratory experiments to explore the performance of the AB in achieving the socially optimal land management configuration in a local network  environment where the information available to subjects varies. The  AB poses a coordination problem between two Nash equilibria: a Pareto dominant and a risk dominant equilibrium. The experiments indicate that if subjects are informed about both their direct and indirect neighbors’ actions, they are more likely to coordinate on the Pareto dominant equilibrium relative to the case where subjects have information about their direct neighbors’ action only. However, the extra information can only delay – and not prevent – the transition to the socially inferior risk dominant Nash equilibrium. In the long run, the AB mechanism may only be partially effective in enhancing delivery of ecosystem services on farming landscapes featuring local networks.

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