Paying landowners and farmers to use sustainable land management practices has been shown to have wide-ranging positive benefits—soil fertility and watershed functioning, climate change mitigation, and biodiversity conservation.
In the United States, Payment for Ecosystem Services (PES) programs have successfully offered farmers financial incentives to employ pro-environmental practices, including the removal of land from agricultural production.
Though these programs have prevented billions of tons of soil from eroding and have reduced nutrient pollution from fertilizers, inefficiencies in their cost effectiveness have held them back from achieving more.
Marc Conte, PhD, assistant professor of economics, has created a research study that aims to improve efficiency in PES programs through better program design. He has received a 4-year grant of $498,641 from the Agriculture and Food Research Initiative (AFRI), which is overseen by the U.S. Department of Agriculture, to carry out his work.
With a collaborator from the University of Nebraska at Lincoln, Simanti Banerjee, PhD, Conte will focus specifically on issues within the Conservation Reserve Program (CRP), which pays farmers to retire land from producing crops for a minimum of 10 years.
Conte’s study will address inefficiencies that arise in the CRP because program managers never know the exact cost of the change in behavior for each farmer. As a result, farmers may receive larger payments than they would actually need to implement changes in their land use. As well, they may be paid for practices they would engage in even without the program, such as no-till production, which reduces erosion of fertile topsoil and allows the nutrients of crop residues to leach into the soil.
The CRP has implemented auctions to create competition among farmers for payments, which lessens farmers’ ability to exploit their information advantage about the cost of alternative management practices. Conte aims to examine how these auctions can best be designed to achieve maximum efficiency and ultimately create a balance between economic activity and ecological sustainability.
“We’re going to use our developed understanding of human behavior to see how changes in the auction design—auction format as well as individuals’ tendencies to seek peer approval—are going to affect auction performance,” he said.
Conte and Banerjee will run a series of experiments with both farmers and undergraduate student volunteers who will engage in auction scenarios on computers.
“It’s going to be a combination of having students participate in the auctions in the lab at our different universities and then looking to see if there is any effect of experience and knowledge about how the CRP is run and how farm management actually occurs when we have farmers participate in the same auction,” said Conte.
In a time of worsening environmental dilemmas alongside concerns about fiscal austerity, Conte believes efficient management of government programs—the goal of his own study—is essential.
“In this environment, it’s very important to be able to provide policy-relevant economic research that can provide guidance to the facilitators of these types of government programs to ensure that their funding doesn’t continue to be reduced, because there are huge positive potential welfare gains from effective programs,” he said.