Do Result-Based Payments Work Better for Groups of Farmers?

Project-funded study presents evidence showing that collective contracts with result-based payments enhance conservation efforts compared to individual schemes

FRAMEwork research has been published in SSRN demonstrating that result-based payments combined with collective contracts enhance conservation efforts in agri-environmental schemes. Economic experiments conducted with farmers in Germany reveal that collective structures can overcome barriers to adoption of outcome-focused payment mechanisms. Experiments comparing four contract types showed that both students and farmers demonstrated lower conservation efforts under individual result-based payments compared to individual action-based payments. However, collective contracts led to a 20 per cent increase in conservation efforts amongst farmers compared to individual contracts.

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Current Challenges and Experimental Designs

Current agri-environmental schemes typically target individual farms and are unable to support collective approaches for landscape-scale conservation. Traditional schemes offer action-based payments conditioning payment on prescribed actions rather than ecological results.

Result-based payments offer higher flexibility, but farmers bear risk of not achieving payment requirements. Collective contracts incorporate a landscape-level dimension by contracting groups of farmers rather than individuals, allowing risk sharing. FRAMEwork investigated how combining result-based payments with collective contracts enhances conservation effectiveness.

Experimental research compared four types of agri-environmental contracts: individual action-based, individual result-based, collective equal-share result-based and collective proportional-share result-based. Using experimental methodology with real farmers provides robust causal evidence about which structural approaches work best.

Key Findings and Behavioural Drivers

Notably, collective result-based payments matched the performance of individual action-based payments, whilst high-risk environments encouraged greater cooperation amongst farmers. Under individual contracts, action-based payments outperformed result-based payments. Efforts declined by 9 per cent amongst students and 11 per cent amongst farmers when payments depended on ecological outcomes rather than actions. Several behavioural factors drive these results.

Peer expectations strongly predict individual conservation contributions, showing that expected group efforts influence individual choices. Organic farmers implemented more conservation measures, suggesting stronger potential for collective result-based payments amongst organic farmers.

These findings have major implications for future design of European agri-environmental policy. Combining result-based payments with collective contracts may enhance agri-environmental scheme effectiveness. Advanced Farmer Clusters offer practical advantages for implementing collective result-based schemes.

Access the full paper at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5178432. Explore all FRAMEwork publications at https://www.framework-biodiversity.eu/publications.