Optimal contract lengths for voluntary ecosystem service provision with varied dynamic benefit functions

Abstract

Programs to stimulate provision of terrestrial environmental services yield benefits that result from complex dynamic functions; we study optimal contract lengths for such programs. We show that the optimal contract length depends on a tradeoff between an ecological effect-long contracts increase the environmental benefits from one landowner-and an enrollment effect-long contracts decrease the number of landowners enrolled. In a simplified model of the contracting environment, we find that optimal contracts are longer when environmental benefits mature slowly, but it may not be best to offer permanent easements or even to offer contracts as long as the maturation period for the benefits in question. Nonecological characteristics matter to contract design as well; optimal contracts are longer where the turnover rate of parcels enrolled in conservation programs is high and where the average private land income is low. © 2011 Wiley Periodicals, Inc.