Privatecostsforenvironmentalgoodsprovisionina

developmentcontext:

labandfieldtestsofanovelcost-revealingmechanism

PreparedforCBEAR-M

AAP2017

SamuelD

.BellOregonStateU

niversityOctober15,2017

Roadmap

1.Motivation

•Setting

•ResearchO

bjectives2.

RandomQuantityM

echanism(RQ

M)

•Features

•Mechanics

3.Experim

entalTestoftheRQM

•Experim

entaldesign•Results

4.Sm

allholderSupplyofEnvironmentalG

oods:EvidencefromAgroforestry

•Settingandexperim

entaldesign•Results

Setting&M

otivation

•Paym

entsforenvironmentalservices,w

ith:•Heterogeneousprivatecosts

•Inform

ationasymmetries

•Threebroadoptionstoim

proveefficiency•Targetoncharacteristicscorrelatedw

ithprivatecostsofprovision•Procurem

entauctionsforallocatingcontracts•Offerscreeningcontractstailoredtodistributionofprivatecosts

•Betterinform

ationonprivatecostscanimproveefficiency

•Random

quantitymechanism

(RQM):

•Truthfullyrevealsprivatecosts

•Canestim

ateheterogeneoustreatmenteffects

Researchobjectives

1.Testperform

anceoftheRQMusinginducedcostsinexperim

entallab;

2.Im

plementtheRQ

Minafieldsetting;

•sm

allholderagroforestryinZambia

3.AssessthepotentialoftheRQ

Masacontractingm

echanismand/or

researchtool.

WhatistheRQ

M?

Cost-revealingextensiontotheBecker -DeG

root-Marschak

mechanism•Providesquasi -experim

entalvariationintreatment(contract

allocation)•Providesrandom

variationincontractterms

•Enablesdirectestim

ationofwillingnesstoaccept(W

TA)across

intensivemarginsusingarepeatelicitationform

atØ

Allow

sestimationofcoststructuresandsupply

•Enablesestim

ationofheterogeneoustreatmenteffects

RQMProcedure

Threesteps:A.

Transfervalue->B.Quantityoffer

->C.Randomquantitydraw

•ContractiffC≤BØ

Optim

alstrategyistoofferquantityforwhichtotalcostofproductionequals

transfer

•Sim

ilardecisiontasktotheBDM(in’reverse’).

•ManyofBD

McharacteristicsapplytoRQ

M

•Profit=transfervalue-privatecostofdraw

nquantity

Inducedcostlabexperiment

•Procurem

entsetting-participantsmakeproductiondecisionsbased

oninducedcostsofproductionandcontract value/transfer•Repeatelicitationacrossfivefirm

s•5differentcoststructures,hypotheticalhom

ogeneousgood.

•Participantsm

adequantityoffersinresponseto3randomly-draw

ntransferpaym

entswithineachfirm

•Eachparticipantm

ade15offersintotal(3pereachof5firms)

•Marketclearingonceallofferroundscom

plete,tolimitlearning

•Onecontractperfirm

implem

ented(randomdraw

oftransferandQ)

•20participants,$34averageearnings

Labexperimentresults

Efficiencymeasures:aggregateandindividualexpectedpayoffs

•17outofthe20participant’soffersresultedinoptim

alexpectedpayoffs•79%

ofthepooledoffersresultedinoptimalexpectedpayoffs

Conclusions:•Experim

entaltestsupportsincentivecompatibility

•Costrevealingandefficientinexpectedpaym

ents•Caveat:sam

plesizequitesmall

RQMfieldexperim

ent

•Sm

allholderfarmers(n=223)inZam

bia•Agroforestrytreeplanting-environm

entalgoodwithpublicand

privatebenefits

•Testnew

mechanism

inthefield–doestheRQ

Mwork?

•Constructaggregatesupplycurves•Com

pareRQMagainst(sim

ulated)procurementauction

•Exploredeterm

inantsofWTA

Fieldimplem

entation

•Sm

allholderisinformedofthecontractpaym

entandaskedhowm

anytreeshe/shew

ouldplantandmaintain

•Repeatedfor5differenttransfers

[20,40,70,100,140]in‘000ZMK

•Onetransferrandom

lydrawn,thenquantitydraw

nfrom[12,25,37,50,75]

•Quasi-random

variationincontractterms

•Paym

entstructure•50%

ofpaymentm

adefortransplantingallseedlings(activity-based)•50%

paidpro-rataonsurvival1yrfollowingplanting(outcom

e-based)

•PartnerN

GOm

onitoredtransplantingandoutcomes.

•60%

ofparticipantsreceivedcontracts

DeterminantsofW

TA

•Regressquantityoffersonsurvivalexpectationsandobservables,controllingfortransfervalues•Survivalexpectationsinteresting-m

ayaffecteffortandoutcomes

(directionambiguousex-ante)

•HighersurvivalexpectationsreducesW

TA–i.e.low

ercostfarmershave

higherexpectations•Possibilityoftargetinglow

-costfarmersonobservables,ifcorrelations

strong•Sellingfoodsandcrafts,Lengthoffoodinsecurity(m

onths)havesignificantpositiveeffects.

•Fem

aleheadedhouseholdstrongpositiveeffect(lowerW

TA),fem

aleisnegativelycorrelatedandm

arginallysignificant.Intra-householddecisionmakingeffect?

Comparisonof:

•RQ

Maggregatesupply(bytransfer)

•RQ

Maggregatesupply(pooled)

•Single-bidm

ulti-unitauctionaggregatesupply

Whatifthesesupplycurvesare

usedtoinformpostedprice?

•Illustrativebudgetconstraint$600:

RQMvs.G

eneralizedVickrey

Quantitytarget:

Matchingthefield

experiment(3,677)

RQMvs.G

eneralizedVickrey

•RQ

Misausefulresearchtool,lesseffectiveasanallocation

mechanism

:•Providesprecisem

easureofWTAallow

ingdirect,non-parametricestim

ationofsupply(likeauctions)•Allocatescontractsw

ithpositiveprobability,allowingotherw

iseout-of-sam

plepredictionsandprovidesexogenousvariationincontractallocationandterm

s,allowingestim

ationofheterogeneoustreatmenteffects

•Random

variationinpricepaid,conditiononmeetingparticipation

constraints•Helpsinseparatingselectioneffectsfrom

causalimpactofpaym

ents

Determinantsofcontractperform

ance

Results–contractoutcom

es

•Largesttransferpaym

entresultsin1.2to3.4extratreessurvivingcom

paredtosmallesttransfer

•Largestquantitydraw

resultsin2to3.9fewertreessurviving

•Survivalexpectationshave(sm

all)negativeeffectonsurvivaloutcom

es•Low

costfarmershavelow

ersurvival.•“Prem

ium”constructedtoexploretheim

pactofhigherpayments

conditionalonagivenWTA.

•Causaleffectofpayment:paym

entsaboveminim

umW

TA

significantlypositivelyimpactsoutcom

es.

Privatecostsforenvironmentalgoodsprovisionina

developmentcontext:

labandfieldtestsofanovelcost-revealingmechanism

PreparedforCBEAR-M

AAP2017

SamuelD

.BellOregonStateU

niversityOctober15,2017