Result-Based vs. Action-Based Payments in Spatially Heterogeneous Landscapes: A Systematic Model-Based Comparison

Abstract Result-based payments (RBP) are discussed as a more targeted and cost-effective alternative to action-based payments (ABP). Previous research indicates that if the economic costs and ecological benefits of conservation measures are spatially heterogeneous the efficiency gains of RBP relative to ABP are largest if there is a positive spatial correlation between the conservation costs and benefits. The present paper presents a stylised spatially structured model of an agricultural landscape with spatially heterogeneous conservation costs and benefits, to systematically explore gains in cost-effectiveness and budget efficiency of RBP relative to ABP as functions of the spatial distribution of the conservation costs and benefits. In addition, since RBP lead to a different allocation of ecological risks between the regulator and the farmers, the present paper explores how the cost-effectiveness and budget efficiency gains depend on the risk attitudes of regulator and farmers when the ecological benefits accruing from the farmers’ conservation efforts are uncertain. Among other things, the results highlight the previously underrated influence of the magnitudes of the spatial variations of the conservation costs and benefits. In the analysis the modelled RBP measurably outperformed the ABP only if the variation in the ecological benefits sufficiently exceeded that in the economic costs. The recently proposed “RBP for modelled results” (as an alternative to the common “RBP for observed results”) did not show any additional performance gain, and in particular were not able to mitigate the risk trade-off between farmers and regulators as it appears in the choice between RBP for observed results and ABP.