Agglomeration Bonus in Local Networks: A laboratory examination of spatial coordination failure

Citation

Banerjee S, Kwasnica AM & Shortle JS (2011) Agglomeration Bonus in Local Networks: A laboratory examination of spatial coordination failure. Stirling Economics Discussion Paper, 2011-18.

Abstract
The Agglomeration Bonus (AB) – a subsidy mechanism can incentivize neighboring landowners to spatially coordinate their land use decisions for effective provision of ecosystem services such as biodiversity protection. In this paper we explore individual AB performance on a local network in a laboratory setting. In our experiments, we vary the local network size while keeping the number of neighbors for each player same. Results suggest better AB performance and greater spatial coordination in smaller groups relative to bigger ones. In bigger groups however we observe localized areas of coordinated land use choices which indicate partial AB effectiveness.

Keywords
Agglomeration Bonus; coordination failure; local networks; experiments; Economic policy; Equilibrium (Economics)

JEL codes

• C72: Noncooperative Games
• C73: Stochastic and Dynamic Games; Evolutionary Games; Repeated Games
• C91: Design of Experiments: Laboratory, Individual
• C92: Design of Experiments: Laboratory, Group Behavior
• Q24: Renewable Resources and Conservation: Land
• Q57: Ecological Economics: Ecosystem Services; Biodiversity Conservation; Bioeconomics; Industrial Ecology

• SEDP-2011-18-Banerjee-Kwasnica-Shortle.pdf