Background Theoretical framework Empirical strategy Conclusions Cash incentives and cooperative behavior: Payments for Ecosystems Services and common property management in Mexico Patricia Yanez-Pagans University of Wisconsin-Madison Summer School in Development Economics, June 21, 2012 Patricia Yanez-Pagans Cash incentives and cooperation
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BackgroundTheoretical framework
Empirical strategyConclusions
Cash incentives and cooperative behavior:Payments for Ecosystems Services and
common property management in Mexico
Patricia Yanez-Pagans
University of Wisconsin-Madison
Summer School in Development Economics, June 21, 2012
Patricia Yanez-Pagans Cash incentives and cooperation
BackgroundTheoretical framework
Empirical strategyConclusions
MotivationMain idea of studyResearch questionsPSAH program
Motivation
Traditional economic theory predicts positiverelationship between economic incentives and effort.
Human behavior can be driven by multiple motivations(intrinsic or extrinsic) that interact with incentives inunexpected ways.
Potential problems with activities that have beentraditionally unpaid (charity, donations, prosocialactivities).
Patricia Yanez-Pagans Cash incentives and cooperation
BackgroundTheoretical framework
Empirical strategyConclusions
MotivationMain idea of studyResearch questionsPSAH program
Main idea of this study
Test the impact of cash incentives on participation incommunity work in a context driven by social norms.
Exploit a unique situation in Mexico, currentlyimplementing one of the largest Payments for EcosystemServices (PES) programs in the world.
More than 70% of forest land in Mexico is owned bycommon property communities, where unpaidcommunity work has a long history.
PES incentives are increasingly given for communityactivities that were previously uncompensated. Framing ofincentive varies across communities.
Patricia Yanez-Pagans Cash incentives and cooperation
BackgroundTheoretical framework
Empirical strategyConclusions
MotivationMain idea of studyResearch questionsPSAH program
Research questions
Do monetary incentives for forest conservation changecooperative behavior within common propertycommunities?
How does the framing of the incentive affects households’participation in community work?
Patricia Yanez-Pagans Cash incentives and cooperation
BackgroundTheoretical framework
Empirical strategyConclusions
MotivationMain idea of studyResearch questionsPSAH program
Related literature and potential contributions
Behavioral economics literature: Incentives mightweaken or strengthen social norms (Benabou and Tirole,2006; Gneezy and Rustichini, 2000; Fehr and Falk, 2002;Carpenter and Myers, 2010) - Mostly experimentalevidence.
PES literature: Depending on local institutions, incentivesincrease or decrease collective action (Vatn 2010;Sommerville et al. 2010; Kerr at al. 2011) - Few robustempirical evidence.
Patricia Yanez-Pagans Cash incentives and cooperation
BackgroundTheoretical framework
Empirical strategyConclusions
MotivationMain idea of studyResearch questionsPSAH program
Mexico’s Payments for Hydrological Services Program
5 year contracts. Yearly paymentscontingent on maintaining forest cover andperforming forest management activities(aprox. USD 480 per household).
Voluntary. Private and common propertieschoose parcels to enroll.
Random monitoring by satellite and fieldvisits.
Patricia Yanez-Pagans Cash incentives and cooperation
BackgroundTheoretical framework
Empirical strategyConclusions
Basic intuitionCommunity leaders’ problemHouseholds’ problem
Theoretical model: Basic intuition
Two actors whose decisions are interrelated(Principal-agent framework).
Leaders choose the optimal distributional rule anticipatinghouseholds’ behavior. Households choose theirparticipation after observing the rule.
Distributional rule might change the enforcement of socialnorms making free-riding more or less acceptable.
Patricia Yanez-Pagans Cash incentives and cooperation
BackgroundTheoretical framework
Empirical strategyConclusions
Basic intuitionCommunity leaders’ problemHouseholds’ problem
Community leaders’ problem
maxγ
{pf F + g(N∑
i=1
lpi (γ,Vi ,X ) +N∑
i=1
lui (γ,Vi ,X ))− c(γ,F ,Z )}
s.t . 0 ≤ γ ≤ 1Where:
γ = Proportion of PSAH income distributed as lump-sum transferspf = Payment per hectare of forest enrolled in programF = Hectares of forest enrolled in programg(.) = Benefit function from aggregate community worklp and lu = Labor supplied in paid and unpaid community workN = Total population in the communityX = Vector of community characteristics that affect labor decisionsc(.) = Cost function of program implementationZ = Vector of community characteristics that affect costsVi = Vector of household i characteristics
Patricia Yanez-Pagans Cash incentives and cooperation
BackgroundTheoretical framework
Empirical strategyConclusions
Basic intuitionCommunity leaders’ problemHouseholds’ problem
Community leaders’ problem
Given the FOC, the optimal distributional rule is:
γ∗ = γ(Z ,F ,X ,N∑
i=1
Vi)
Where:
Z = Vector of community characteristics that affect program costs.
F = Amount of forest enrolled in program.
X = Vector of community characteristics that affect households’ labor decisions.
Vi = Vector of household characteristics that affect labor decisions.
Fundamental question: What is in Z?
Patricia Yanez-Pagans Cash incentives and cooperation
BackgroundTheoretical framework
Empirical strategyConclusions
Basic intuitionCommunity leaders’ problemHouseholds’ problem
Yijt = Cooperation outcome of interest for individual i in community j and time tI Decision to participate in paid or unpaid community workI Number of days per year worked in paid or unpaid community work
Tt = 1 if 2011 and 0 if 2007
Pij = 1 if community participates in PSAH program
Vi = Household characteristics
Xj = Community characteristics
Combine matching with DID estimation.
Patricia Yanez-Pagans Cash incentives and cooperation
BackgroundTheoretical framework
Empirical strategyConclusions
DataIdentification strategySuggestive evidence
Measuring the impact of different incentive schemes
N 734 350 350 350 350Controls Yes Yes Yes Yes Yes* p<0.1 ** p<0.05 *** p <0.01 Robust standard errors clustered at the community level.
Cash incentives increase participation in unpaid communitywork by 18%. This increase is higher with full distribution andfor those with land-use rights.
Patricia Yanez-Pagans Cash incentives and cooperation
BackgroundTheoretical framework
Empirical strategyConclusions
DataIdentification strategySuggestive evidence
Days worked in other unpaid community work
Patricia Yanez-Pagans Cash incentives and cooperation
BackgroundTheoretical framework
Empirical strategyConclusions
DataIdentification strategySuggestive evidence
Table: Number of days in other unpaid community work