Ecology Letters (2012) 15: 406–414
Incentive payments to private landowners provide a common strategy to conserve biodiversity and enhance the supply of goods and services from ecosystems. To deliver cost-effective improvements in biodiversity, payment schemes must trade-off inefficiencies that result from over-simplified policies with the administrative burden of implementing more complex incentive designs. We examine the effectiveness of different payment schemes using field parameterized, ecological economic models of extensive grazing farms. We focus on profit maximising farm management plans and use bird species as a policy-relevant indicator of biodiversity. Common policy simplifications result in a 49–100% loss in biodiversity benefits depending on the conservation target chosen. Failure to differentiate prices for conservation improvements in space is particularly problematic. Additional implementation costs that accompany more complicated policies are worth bearing even when these constitute a substantial proportion (70% or more) of the payments that would otherwise have been given to farmers.