Agglomeration bonus: an incentive mechanism to reunite fragmented habitat for biodiversity conservation

This paper examines an experiment conducted to explore a voluntary incentive mechanism, the agglomeration bonus, designed to protect endangered species and biodiversity by reuniting fragmented habitat across private land. The goal is to maximize habitat protection and minimize landowner resentment. The agglomeration bonus mechanism pays an extra bonus for every acre a landowner retires that borders on any other retired acre. The mechanism provides incentive for non-cooperative landowners to voluntarily create a contiguous reserve across their common border. A government agency's role is to target the critical habitat, to integrate the agglomeration bonus into the compensation package, and to provide landowners the unconditional freedom to choose which acres to retire. The downside with the bonus, however, is that multiple Nash equilibria exist, which can be ranked by the level of habitat fragmentation. Our lab results show that a no-bonus mechanism always created fragmented habitat, whereas with the bonus, players found the first-best habitat reserve. Once pre-play communication and random pairings were introduced, players found the first-best outcome in nearly 92% of play. (C) 2002 Elsevier Science B.V. All rights reserved.