Biodiversity and the Design of Result-based Payments: Evidence from Germany

Paying farmers for measured outcomes – i.e., results, not actions - is promoted for reducing risk and raising flexibility in addressing agriculture’s environmental damages. One key design choice is how exactly to reward those measured results. Continuous rewards are possible yet, in practice, observed species outcomes have been rewarded using a single threshold (compliant/not) or, to move toward continuity, a few thresholds (e.g., low-medium-high). We assess whether more continuous rewards – specifically, multiple target thresholds for plant species - raised bird diversity. We study a pilot scheme in Germany’s Lower Saxony, where an incentive with one threshold is the baseline. Using citizen-science bird data (offering over 6.7m entries across 16 years), we find that the pilot scheme using multiple target thresholds for plant species raised bird diversity versus the single-threshold baseline (same lower threshold, but no further thresholds). Our findings show potential for benefits from even small shifts in incentive designs.