Agglomeration payment, agglomeration bonus or homogeneous payment?

•Three types of payments for measures to conserve biodiversity are analysed.•These are spatially homogeneous payment, agglomeration payment, agglomeration bonus.•Their cost-effectiveness and budget efficiency is compared for different parameters.•Scenarios with and without side payments are analysed.•Performance of agglomeration bonus never substantially dominates the other two options.

When designing compensation payments for biodiversity conservation measures setting appropriate incentives so that landowners select spatially connected land parcels for conservation is of key importance for many species. The proposition of an agglomeration bonus, where landowners receive a homogeneous payment and a bonus on top if the spatial allocation of conserved land benefits biodiversity, has been widely discussed. Here, we compare for various ecological and economic parameters the cost-effectiveness and budget efficiency of an agglomeration bonus with a spatially homogeneous payment (where landowners receive the same payment regardless of the spatial allocation of conserved land) and an agglomeration payment (where landowners receive money only if conserved land parcels are spatially connected). Key results include that whether side payments between participants take place plays an important role in the relative performance of the payment options, and that the performance of the agglomeration bonus is either clearly dominated by one of the two other options, but never by both, or very close to the better performing option.