Additionality Violations in Agricultural Payment for Service Programs: Experimental Evidence

Abstract

This article defines perfect program additionality (PPA) for payment for ecosystem services subsidy programs and formalizes potential violations of PPA. PPA is examined for multiple subsidy programs in an experimental setting using a variant of the common public good game. A large proportion of subsidized activities are found to be nonadditional. Further, two sources of nonadditionality are identified and tested for: the pay-for-nothing effect and crowding-out. The extent to which subsidies generate truly additional benefits is a function of both the design of the subsidy program and, crucially, whether the incentivized best management practice acts as a substitute for other best management practices. (JEL Q18, Q58)