Does tendering conservation contracts with performance payments generate additional benefits?

Policy makers aiming to get private landholders to supply non-marketed environmental services mayneed to provide efficient economic incentives. Two ideas have been explored to achieve this: linkingcontract payments to environmental outcomes and submitting the contracts to competitive tender. Thispaper investigates whether there are any gains to be had by combining the potential benefits of bothapproaches. Landholders’ risk aversion to only partially controlled outcomes may offset incentiveeffects if the fall in participation outweighs any increases in individual effort. Controlled labexperiments were designed on the basis of a theoretical model and were run in two countries, withvarying rates of payments linked to environmental outcomes. Results suggest that it can be counterproductivein terms of expected environmental outcomes to combine tenders with incentive payments,especially when the target population is known to be risk-averse.