Addressing the Collective Action Problem in Multiple-purchaser PES: An Experimental Investigation of Negotiated Payment Contributions

Abstract

Involving multiple-purchasers in a PES scheme has the potential to deliver numerous benefits including cost-sharing, expanded financing and broadened scope. That few such schemes exist is evidence of a classic market failure resulting from incentives to free-ride on the payments of other purchasers. In the context of an experimental investigation, this paper explores the role of negotiation and binding pre-commitments to payments in solving that collective action problem. Our novel experimental setup involves two purchasers seeking a level of payment acceptable to a single provider while also agreeing their own individual contributions to that payment. Contrasting treatments are used to explore complexities of the conditions under which negotiations might take place including asymmetries between the purchasers, treatments with incomplete information and treatments with uncertainty over the levels of benefit. We find that those complexities change the ease with which a negotiated agreement is achieved as well as the relative size of the payoffs enjoyed by the different parties to the negotiations Our findings are generally positive, showing that under many circumstances parties to a multiple-purchaser PES can successfully negotiate a mutually agreeable schedule of payments and contributions.