Department seminar series

05 Jan 2015

Speaker: Prasenjit Banerjee, University of Manchester Title: Social rewards and the design of voluntary incentive mechanism for biodiversity protection on farmland Venue: Department of Economics, University of Calcutta. Room number 32 Time: 3:30 p.m. Date: January 5, 2015 Abstract This work examines how social preferences affect standard economic incentive mechanism designed to encourage biodiversity protection on private land. People vary in social preferences and some farmers may engage in conservation activities merely to ‘buy’ a good social reputation rather than for the sake of the public good as such. The policy maker’s dilemma is that of asymmetric information; she does not know the specific motivation to engage in the conservation activity of the individual farmer. She does not want to pay a green farmer (with social preferences) to crowd out his incentive; she also does not want to pay extra money to a brown farmer (social reputation seeker). We investigate an optimal voluntary incentive mechanism design that specifies a monetary-transfer-to-effort menu that gets the best out of both types of farmers. The mechanism also incorporates the interplay between honour, stigma, and social norms that arise from farmers’ behaviours and their interaction with financial instrument. Our results show: (i) social reward can induce the ‘early birds’ who used to be green even before other farmers start doing biodiversity protection; and (ii) the policy maker can save some public fund as brown farmers want to buy reputation.