Zentrum für Entwicklungsforschung
Center for Development Research
University of Bonn
COMPARATIVE ANALYSIS OF ACTION-BASED AND OUTCOMEBASED PES AUCTIONS:
Tree planting field trial in Kenya
Lucie, Andeltová, Tobias Wünscher, Karin Holm-Müller and Elsa Cardona Santos
Cooperation partners: The World Agroforestry Centre, BMZ, fiat panis, DAAD
Zentrum für Entwicklungsforschung
Center for Development Research
University of Bonn
Action-based versus Outcome-based payments
Zentrum für Entwicklungsforschung
Center for Development Research
University of Bonn
Outcome-based versus Action-based PES
Outcome-based contracts
Address the moral hazard problem
(Schilizzi et al. 2011).
Flexibility, enhancing innovations
intrinsic motivation
(Matzdorf & Lorenz, 2010).
Outcome uncertainty
(Zabel & Roe 2009, Holm-Müller et al. 2006).
Reduced participation if high risk aversion
(Schilizzi et al. 2011).
Action-based contracts
Non-stochastic income component
(Latacz-Lohmann and Van der Hamsvoort,
1997)
Level of provision easier to observe by
landowners
(Engel et al., 2008)
Inputs do not necessarily lead to desired
outcome
(Zabel and Roe, 2009)
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Zentrum für Entwicklungsforschung
Center for Development Research
University of Bonn
Field trial in Kenya
Zentrum für Entwicklungsforschung
Center for Development Research
University of Bonn
Tree planting field trial in Kenya
Contract requirements:
Planting of 30 trees at the riparian area
 Action-based contracts: tree watering
 Outcome-based contracts: tree survival
Auction setting:
Budget constrained, discriminative-price, sealed-bid auction
Farmers stratified (income, gender) & randomly assigned
One shot
Participation:
411 invited households
234 participants
119 farmers accepted
98 contracts signed
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Zentrum für Entwicklungsforschung
Center for Development Research
University of Bonn
Analytical Framework of cost-effectiveness
Zentrum für Entwicklungsforschung
Center for Development Research
University of Bonn
Analytical framework for the cost-effectiveness analysis
Source: Adapted from Matzdorf and Lorenz (2010)
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Zentrum für Entwicklungsforschung
Center for Development Research
University of Bonn
Results
Zentrum für Entwicklungsforschung
Center for Development Research
University of Bonn
Analytical framework for the cost-effectiveness analysis
Source: Adapted from Matzdorf and Lorenz (2010)
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Zentrum für Entwicklungsforschung
Center for Development Research
University of Bonn
Auction results
Outcome-based bids
Action-based bids
26126.32 KES (293.63 USD)
20
0
0
10
20
Frequency
Frequency
40
30
40
60
29406.23 KES (330.50 USD)
0.00
50,000.00
100,000.00
150,000.00
200,000.00
Bid submitted at the auction (Outcome-based)
250,000.00
0.00
20,000.00
40,000.00
60,000.00
Bid submitted at the auction (Action-based)
80,000.00
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Zentrum für Entwicklungsforschung
Center for Development Research
University of Bonn
Auction results (in KES)
Submitted bids
Contract type
Obs
Mean
Std. Dev.
Action-based
117
26126.32
12729.78
Outcome-based
116
29406.23
32499.01
13028.72
Selected bids***
Action-based
60
6923.35
(146.30 USD)
16277.63
Outcome-based
59
5968.81
(182.78 USD)
Signed bids
Final payment
Action-based
45
14713.84
6215.43
Outcome-based
54
16618.15
5900.53
Action-based
44
12964.52
5864.25
54
14204.13
5557.92
Outcome-based
*** significant at a coinfidence
level of 1%
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Center for Development Research
University of Bonn
Contract Drop-Outs
Action-based scheme
5 participants out of 59
mean bid of 12600 KES (141.49 USD)
15 participants out of 60
mean bid of 7973.333 KES (89.53 USD)
0
0
2
1
Frequency
Frequency
4
2
6
3
8
Outcome-based scheme
0.00
5,000.00
10,000.00
Bid submitted at the auction
15,000.00
20,000.00
6,000.00
16,500.00
Bid submitted at the auction
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Center for Development Research
University of Bonn
Ecological performance and marginal costs (in KES)
Contract type
Obs
Mean
Std. Dev.
Action-based
44
26.13
5.30
Outcome-based
54
24.79
6.01
Survival rates
Action-based
44
Marginal cost of a tree*
495.05
(5.56 USD)
203.00
564.15
Outcome-based
199.80
53
(6.33 USD)
* significant at a confidence level of 10%
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Zentrum für Entwicklungsforschung
Center for Development Research
University of Bonn
Stated costs versus final payment (in KES)
Contract type
Action-based
Outcome-based**
Obs
Mean
Std. Dev.
Stated costs
44
10562.64
10314.75
Payment received
44
12964.52
5864.25
Stated costs
54
10736.19
8323.69
Payment received
54
14204.13
5557.92
** significant at a coinfidence level of 5%
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Zentrum für Entwicklungsforschung
Center for Development Research
University of Bonn
Analytical framework for the cost-effectiveness analysis
Source: Adapted from Matzdorf and Lorenz (2010)
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Center for Development Research
University of Bonn
Flexibility and innovation
Participants were asked to list all activities they undertook in order to take care of
trees:
Answers were categorized in 15 groups as follows:
watering, weeding, fencing, fertilizing, guarding from domestic animals, guarding from people, use of insecticides/pesticides, erosion
prevention/ construction of terraces or contours, shading, trapping moles, applying ash to control termites, rain water management: cut-off
drain / dig trenches, floods prevention, guarding from wild animals, and mulching.
On average the same amount of activities was undertaken in both contract types.
The following statistics might give a hint to explain this result:
 58% of action-based contracted stated that their main motivation was only the tree
survival
 65% would water the trees in an outcome-based contract as often as they did
 only 18% of them would water them less.
 30% would do the same activities in an outcome-based scheme.
 Unclear whether the rest would do more or less activities.
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Zentrum für Entwicklungsforschung
Center for Development Research
University of Bonn
Analytical framework for the cost-effectiveness analysis
Source: Adapted from Matzdorf and Lorenz (2010)
11
Zentrum für Entwicklungsforschung
Center for Development Research
University of Bonn
Intrinsic motivation
A good farmer cares for plants on his farm*
100%
Feels obliged to take good care of a tree planted*
100%
90%
90%
action-based
80%
action-based
80%
70%
outcome-based
70%
60%
60%
50%
50%
40%
40%
30%
30%
20%
20%
10%
10%
outcome-based
0%
0%
1
2
3
4
5
1
2
3
4
5
*on a scale from 1 to 5, where 1 corresponds to I agree very much and 5 to I very much disagree
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Zentrum für Entwicklungsforschung
Center for Development Research
University of Bonn
Intrinsic motivation
Planting trees is a responsibility/obligation*
Contract increased tree planting’s importance*
100%
90%
80%
80%
action-based
70%
action-based
70%
60%
60%
outcome-based
50%
outcome-based
50%
40%
40%
30%
30%
20%
20%
10%
10%
0%
0%
1
2
3
4
5
1
2
3
4
5
*on a scale from 1 to 5, where 1 corresponds to I agree very much and 5 to I very much disagree
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Zentrum für Entwicklungsforschung
Center for Development Research
University of Bonn
Additionality
Outcome-based scheme
Action-based scheme
126 trees on average
200 other trees on average
The bids significantly decrease with the number of trees already existing in the riparian area.
 Marginal effect** of -35 KES (-0.4 USD) in the signed bids.
Every participant would be willing to plant 30 trees if they would be given the seedlings for
free even in the absence of payment.
7.4% would care less
9% would care less
57% believe that landowners
would comply
without payment
66% believe that
landowners would comply
without payment
** significant at a coinfidence level of 5%
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Zentrum für Entwicklungsforschung
Center for Development Research
University of Bonn
Analytical framework for the cost-effectiveness analysis
Source: Adapted from Matzdorf and Lorenz (2010)
15
Zentrum für Entwicklungsforschung
Center for Development Research
University of Bonn
Continuity
after 18 months…
Contract type
Obs
Mean
Std. Dev.
Action-based
44
21.38
7.38
Outcome-based
54
19.8
6.6
Survival rates
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Zentrum für Entwicklungsforschung
Center for Development Research
University of Bonn
Analytical framework for the cost-effectiveness analysis
Source: Adapted from Matzdorf and Lorenz (2010)
17
Zentrum für Entwicklungsforschung
Center for Development Research
University of Bonn
Risk
Outcome-based scheme
Action-based scheme
10% perceive this scheme as more risky
49% perceive this scheme as more risky
Risk of being monitored when the soil is not
moist.
However, no observable significant effect of stated risk behaviour on bids
 Most landowners prefer the action based scheme due to specific expected actions
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Zentrum für Entwicklungsforschung
Center for Development Research
University of Bonn
Conclusion
Zentrum für Entwicklungsforschung
Center for Development Research
University of Bonn
Conclusion
The action-based payments were more effective regarding only the static aspect of costeffectiveness.
 Higher average bid under the outcome-based scheme
 No significant difference in terms of ecological performance
 Marginal cost of a tree significantly higher in the outcome-based scheme
In terms of the dynamic aspect of cost-effectiveness we found less robust results.
 Action-based scheme is preferred
 Action-based contract perceived as more risky
 No difference between both schemes in terms of actions undertaken: Action-based
contracted landowners did more activities than expected
• Where they mainly motivated by tree-survival?
• Did they not understand the nature of their contract?
• Did they have an incentive to take care of trees in order to receive the payment? If
there is no tree, what should they water?
Low additionality under both contract types
 Willingness to participate without payment: credible?
 Bid decreases with the number of trees already existing in the riparian area
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Zentrum für Entwicklungsforschung
Center for Development Research
University of Bonn
THANK YOU VERY MUCH FOR YOUR ATTENTION
20
Zentrum für Entwicklungsforschung
Center for Development Research
University of Bonn
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Center for Development Research
University of Bonn
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Zentrum für Entwicklungsforschung
Center for Development Research
University of Bonn
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