Can collective conditionality improve agri-environmental contracts? Insights from experimental economics

Traditional agri-environmental contracts, action-based voluntary and individual, have not succeeded in meeting the environmental targets set in the European Common Agricultural Policy, despite the large amounts dedicated to their implementation. One of the main reasons for this unsatisfying outcome is the limited and scattered adoption of contracts and the existence of threshold environmental effects. We use a threshold public good experiment to test an agri-environmental contract with a collective conditionality, a new form of contract in which farmers are paid only if the environment production threshold is collectively attained, a sort of collective result-based contract. Our experimental results show that conditional agri-environmental contracts are more efficient than the traditional ones and improve the environmental outcome. We also highlight that early stages of implementation of such mechanism is fundamental for its success and that risk aversion can limit its effectiveness, suggesting the importance of accompanying its introduction with facilitation activities. We conclude that this new form of contracts should be considered in the design of future agri-environmental policies.