Experimental Design
We implement a 2 (result-based and flat-annual carbon payments) × 2 (co-benefit, no co-benefit) between-subject experimental design framed around tree planting for carbon sequestration. Randomly assigned to a group of ten, participants will be given an endowment to save in a private account or invest collectively in afforestation and reforestation. The first treatment is a results-based payment mechanism with no co-benefit. In the first treatment, returns from group investments increase over time, as benefits do not immediately accrue after costs are incurred. Instead, delayed benefits are contingent upon farmers' prior efforts to maintain seedling and sapling survival rates and monitor young trees' growth. As trees grow, more carbon is sequestered, which increases the return from group investments. However, if participants invested less, the survival rate would be reduced, leading to low carbon sequestration and low payment in the later rounds. The second treatment, result-based payment with co-benefit, involves allowing participants to earn additional income at the end of the game based on the number of surviving trees planted in the first round. The first two treatments are represented by an increasing marginal rate of return (MPCR). In the last two treatments, flat-annual payment with and without co-benefit, participants' return will be determined by their group investment, not by the amount of carbon sequestered over time. A constant MPCR represents this over the rounds in the game.
Treatment 1: Result-based payment
Participants will engage in an eight-round game designed to mimic the lifespan of a land restoration project. The MPCR increases progressively with the growth stages of planted trees over the rounds, reflecting their carbon sequestration potential. For simplicity, tree growth is divided into four stages based on average carbon sequestration rates, facilitating MPCR calculations. A higher group investment for planting and maintaining of trees is expected in stage one (rounds 1 and 2). However, the expected payoffs are relatively low. Participants will continue to invest in maintaining the planted trees so that they grow taller and thicker in the second stage (rounds 3 and 4). However, the return remains modest compared to the required group investment, represented by a moderately increased MPCR. Stage three (rounds 5 and 6) yields higher payoffs for participants, reflected in a notable rise in MPCR. Finally, in the last stage (rounds 7 and 8), participants benefit from the highest payoffs in the game. The structure of the MPCR requires a consistent and higher group investment in the earlier stages to accrue a higher payoff in the later stages. Participants will not cooperate in the early stages, as the anticipation of higher social benefits in later stages may not provide sufficient motivation for early investments. Since the extra return from the group project is small, participants may feel indifferent about cooperating or defecting. Consequently, the perceived low returns in the early stages may deter participants from investing, limiting their ability to enhance collective action and achieve higher benefits in the later stages.
Treatment 2: Result-based payment with co-benefits
Participants will follow the same procedure in treatment two as in the previous treatment. The MPCR increases with the growth stages of the trees, thereby enhancing participants' payoffs over time. In addition to receiving carbon payments, participants will earn an additional benefit at the end of the game. This final payment depends entirely on the number of fully grown trees, meaning that only trees planted during the first stage will contribute to this benefit. Participants' expectation of an additional benefit at the end of the game will encourage cooperation during the early stages to maintain the trees planted.
Treatment 3: A flat annual payment without co-benefits
In the case of the flat annual payment, the MPCR is constant across rounds. Participants' payoff is determined by their group effort on the premise that the effort will bring more carbon sequestration in the future. Participants will collectively invest in early rounds. However, the cooperation will not be sustained in later rounds due to the tendency to free ride. As a result, the promised simulated carbon sequestration may not be provided, shifting the financial risks to carbon buyers.
Treatment 4: A flat annual payment with co-benefits
The co-benefit is represented by a fixed parameter, realized in the final round, and its magnitude is proportional to group investments or the number of trees fully grown at the end of the eighth round. In addition to the sum of payoffs in each round, participants will be paid an additional lump sum based on those fully grown trees. Participants will collectively invest in afforestation and reforestation to realize delayed co-benefits.