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Market-based conservation instruments, such as payments, auctions or tradablepermits, are environmental policies that create financial incentives forlandowners to engage in voluntary conservation on their land. But what ifecological processes operate across property boundaries and land use decisionson one property influence ecosystem functions on neighboring sites? This paperexamines how to account for such spatial externalities when designingmarket-based conservation instruments. We use an agent-based model to analyzedifferent spatial metrics and their implications on land use decisions in adynamic cost environment. The model contains a number of alternative submodelswhich differ in incentive design and social interactions of agents, the latterincluding coordinating as well as cooperating behavior of agents. We find thatincentive design and social interactions have a strong influence on the spatialallocation and the costs of the conservation market.

Stay by thy neighbor? Social organization determines the efficiency of biodiversity markets with spatial incentives