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Performance-based payments for water quality: Experiences from a field experiment

The conventional approach to addressing agricultural nonpoint pollution (ANP) focuses on voluntary conservation measures that are implemented by farmers with cost-share assistance and technical support from the government (Ribaudo et al. 1999). These conservation measures are generally directed by federal agencies to conform to strict behavioral guidelines in order to receive the assistance. Cost-share programs, however, are falling short in two respects: (1) water quality goals are not being met, and (2) they are expensive. For example, the US Environmental Protection Agency (2002) has estimated that agriculture impacts 48% of impaired rivers and 41% of impaired lakes. These water quality problems persist despite billions of dollars being spent on conservation cost-share programs by the federal government over the last two decades (US General Accounting Office 2005). This article describes the first two years of a field experiment that examines a performance-based payment approach to ANP as an alternative to conventional cost-share programs. Performance-based payments have been used widely both in the United States and globally to motivate land managers to provide environmental services (Wunder, Engel, and Pagiola 2008). Our field experiment differs from previous performance-based payment schemes in several ways: watershedwide payments are made to a group, rather than to…