- Center for Policy Research on Energy and the Environment
- High Meadows Environmental Institute
- Julis-Rabinowitz Center for Public Policy and Finance
- Griswold Center for Economic Policy Studies
- Research Program in Development Economics
Particulate matter dramatically lowers life expectancy in India, especially in north India where crop residue burning is a significant contributor to the air pollution burden. We use a randomized controlled trial in the state of Punjab to test the efficacy of conditional cash transfers (i.e., payments for ecosystem services, or PES) in reducing crop residue burning. We hypothesize that providing some of the payment upfront has advantages over the standard PES contract that makes the full payment after compliance is verified. Upfront money enables a credit-constrained participant to comply if compliance entails a monetary cost, and, in addition, builds trust that the rest of the payment will be paid ex post as promised. To test this hypothesis, we randomize paying a portion of the transfer upfront and unconditionally. We find that, despite receiving a lower incentive to comply, farmers in contracts with partial upfront payment reduce burning by 8-11 percentage points, significantly more than farmers receiving the standard contract. We also show that providing partial-upfront cash transfers to farmers is a cost-effective way of improving India's air quality.