Use of Compliance Rewards in Agri-environmental Schemes

Abstract

Ensuring that farmers comply with the terms of agri-environmental schemes is an important issue. This paper explores the use of a 'compliance-reward' approach under heterogeneous net compliance costs with respect to cost-share working lands programmes such as the Environmental Quality Incentives Program (EQIP) in the United States. Specifically, we examine the use of a reward under asymmetric information and output price uncertainty. We examine two possible sources of financing under the assumption of budget neutrality: (i) funds obtained by reducing monitoring effort; and (ii) money saved by reducing the number of farmers enrolled. We discuss the advantages and disadvantages of each source of funding and analyse these numerically for both risk-neutral and risk-averse farmers. We also examine the trade-off between increased expenditure on monitoring effort and compliance rewards when additional budgetary resources are available. We show that under certain conditions a compliance reward can increase compliance rates. For risk-averse farmers, however, conditions that ensure a positive outcome become more restrictive.

Keywords

Agri-environmental schemes; compliance monitoring; incentive payments; moral hazard; Q12; Q20; Q28; Q57

Published in

Journal of Agricultural Economics
2009, Volume: 60, number: 3, pages: 530-545 Publisher: WILEY-BLACKWELL PUBLISHING, INC

SLU Authors

• Yano, Yuki

  • Department of Economics, Swedish University of Agricultural Sciences
    

UKÄ Subject classification

Environmental Sciences related to Agriculture and Land-use
Agricultural Science


Publication identifier

DOI: https://doi.org/10.1111/j.1477-9552.2009.00208.x

Permanent link to this page (URI)

https://res.slu.se/id/publ/49433