Abstract

Payments for ecosystem services – and conditional cash transfers more broadly – encourage specific behaviors by rewarding participants who undertake the behaviors. However, incomplete markets and weak institutions, which are common in developing countries, can hinder program effectiveness. If compliance entails a monetary cost, then a credit constrained household might not be able to comply. In addition, lack of trust that the payments will be made as promised can deter compliance. In both cases, upfront payments have some advantages. We use a randomized controlled trial to understand how effectively cash transfers can reduce agricultural residue burning in the north Indian state of Punjab. We randomize paying a portion of the cash transfer upfront (unconditionally). Despite lower marginal payments for compliance, farmers in PES programs that offer some of the payment upfront reduce burning by significantly more than those in a standard PES program.

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