A contract-theoretic model of conservation agreements

We model conservation agreements using contractual equilibrium, a concept introduced by Miller and Watson (2010) to model dynamic relationships with renegotiation. The setting takes the form of a repeated principal-agent problem, where the principal must pay to observe a noisy signal of the agent’s effort. Lacking a strong external enforcement system, the parties rely on self-enforcement for their relational contract. We characterize equilibrium play (including how punishments and rewards are structured) and we show how the parties’ relative bargaining powers affect their ability to sustain cooperation over time. We argue that the model captures important features of real conservation agreements and reveals the ingredients required for successful agreements. ∗Gjertsen and Niesten: Conservation International; Groves, Miller, and Watson: University of California, San Diego; Squires: NOAA Southwest Fisheries Science Center. The authors thank the NOAA Fisheries Service for supporting this research.