Does tendering conservation contracts with performance payments generate additional benefits?
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Policy makers aiming to get private landholders to supply non-marketed environmental services may
need to provide efficient economic incentives. Two ideas have been explored to achieve this: linking
contract payments to environmental outcomes and submitting the contracts to competitive tender. This
paper investigates whether there are any gains to be had by combining the potential benefits of both
approaches. Landholders’ risk aversion to only partially controlled outcomes may offset incentive
effects if the fall in participation outweighs any increases in individual effort. Controlled lab
experiments were designed on the basis of a theoretical model and were run in two countries, with
varying rates of payments linked to environmental outcomes. Results suggest that it can be counterproductive
in terms of expected environmental outcomes to combine tenders with incentive payments,
especially when the target population is known to be risk-averse.