Collective Contracts as a Risk‐Sharing Mechanism for Result‐Based Agri‐Environmental Payments: Experimental Evidence

ABSTRACT Linking payments from agri‐environment schemes to ecological results or to collective outcomes is viewed as a promising way to increase the effectiveness of agri‐environmental conservation. However, the two approaches are rarely combined. In this study, we test the performance of result‐based payments with collective contracts in a contextualised economic experiment with 540 non‐agricultural and agricultural students in Germany. Combining result‐based payments with collective contracts may hold potential by allowing farmers to share the risks associated with result‐based payments within a group. A downside of collective contracts, however, is the creation of a social dilemma, as individual payments depend on group outcomes. We find no evidence of differences in conservation levels under result‐based payments with collective as compared to individual contracts, suggesting that risk‐sharing benefits and effects of the social dilemma offset each other. We further examine the performance of collective contracts for varying risk levels that could, for example, reflect different geological and climatic conditions across Europe. Result‐based payments with collective contracts motivate higher conservation efforts in our experiment when external risks are high. Further, high risks appear to foster group cooperation under collective contracts, potentially leading to more equitable and predictable outcomes.