Collective PES Contracts Can Motivate Institutional Creation to Conserve Forests: Experimental Evidence

ABSTRACT Incentives are a widely used tool for addressing deforestation and are often implemented as collective contracts. Local institutions are crucial to the solution of collective action problems associated with forest conservation, but we still have little knowledge of how to encourage institutional creation through policy. Since collective contracts do not eliminate freeriding incentives, we argue that their success hinges on their ability to stimulate the creation of institutions for collective action. To test these ideas, we analyze data from an incentivized lab‐in‐the‐field experimental collective action game played with natural resource users in four developing countries. The experiment simulates management of a common forest, and groups were randomly assigned to a conservation incentive payment condition. We observe how much group members attempt to coordinate on the creation of institutional rules and find experimental evidence that an external incentive program can stimulate the endogenous creation of informal institutions.