A Targeting Bonus for More Effective Agri‐Environmental Policy

ABSTRACT Despite significant policy interventions and conservation initiatives, incentives for the conservation of biodiversity have been criticised for being ecologically ineffective and economically inefficient. This paper examines a novel approach to improve the ecological and economic performance of such incentives. Specifically, we analyse the ecological and economic effectiveness of a targeting bonus which establishes a two‐part subsidy for changes to land management when the ecological benefits of such changes vary spatially. Using a spatially explicit mathematical programming model applied to an empirical case study in the UK, we show that a targeting bonus has the potential to enhance efficiency, with the magnitude of gains depending on the strength of the spatial correlation between opportunity costs and ecological benefits, as well as the size of the budget and the definition of the targeting zone. We find that the targeting bonus offers major advantages when the most ecologically beneficial land parcels are positively correlated with highest opportunity costs for farmers; and that the additional benefits of the targeting bonus relative to a no‐bonus subsidy scheme eventually decline as the share of the bonus is increased.