The crowding-out of public good conservation effort: an application to market-based biodiversitiy conservation policy in Australia

[Truncated abstract] The challenge of designing institutions to influence individual behaviour towards social goals is central to economic theory, research and practice. This study has focused on investigating aspects of this challenge in the context of agri-environmental policy settings in Australia. Market-based institutional arrangements are emerging in Australia, and globally, as a dominant intervention to engage agricultural landholders in delivering public good environmental conservation. The more traditional approach in economics has been to evaluate the efficiencies that can be gained through instrument design to establish incentive compatibility to leverage private economic motives. However, this study has a focus on understanding how interactions between market incentives and non-economic socially-based motivations might affect farmer's participation in environmental conservation. A field-based study that has been guided by 'motivation crowding-out' theory (Frey 1997c) is presented. In a significant departure from neoclassical predictions, crowdingout theory suggests that market institutions can displace or crowd out social motivations (where they are important) and thus work to reduce rather than increase private contributions to public goods. There has been very limited empirical analysis undertaken to evaluate the possibility of such effects in agri-environmental contexts and this study makes a contribution to filling this gap. The empirical relevance of crowding-out was evaluated through the implementation of two case studies of biodiversity conservation. The willingness of farmers to participate in biodiversity conservation was evaluated in the context of 1) An on-ground trial of a biodiversity conservation auction; and 2) A choice modelling experiment that investigated responses (of participation) to a range of incentive scenarios. In this study crowding-out effects were found to be highly relevant.