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A Group Incentive Contract To Promote Adoption Of Best Management Practices


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  • DeVuyst, Eric A.
  • Ipe, Viju C.


The control of agricultural nonpoint source pollution is emerging as a priority of state and national pollution control programs. Best management practices (BMPs) are often proposed as a method of control. Many BMPs are perceived by farmers as having economic disadvantages when compared to conventional management systems. In the absence of tougher environmental restrictions on farmer behavior and complete observability of individual farmer actions, it may be necessary to provide economic incentives to encourage farmer adoption of BMPs within environmentally sensitive watersheds. This study investigates the use of a group incentive contract to encourage adoption of BMPs. The idea behind the group incentive contract is to compensate farmers for actual damages due to adoption of BMPs while avoiding moral hazard problems and exploiting the correlated risks that farmers in a watershed face. Simulation results indicate that the majority of the nitrate pollution generated by central Illinois corn growers could eliminated at little or no cost.

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Article provided by Western Agricultural Economics Association in its journal Journal of Agricultural and Resource Economics.

Volume (Year): 24 (1999)
Issue (Month): 02 (December)

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Handle: RePEc:ags:jlaare:30803

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Keywords: Environmental Economics and Policy;


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  1. Cooper, Joseph C. & Keim, Russ, 1996. "Incentive payments to encourage farmer adoption of water quality protection practices," MPRA Paper 24779, University Library of Munich, Germany.
  2. Segerson, Kathleen, 1988. "Uncertainty and incentives for nonpoint pollution control," Journal of Environmental Economics and Management, Elsevier, vol. 15(1), pages 87-98, March.
  3. Barry J. Nalebuff & Joseph E. Stiglitz, 1983. "Prices and Incentives: Towards a General Theory of Compensation and Competition," Bell Journal of Economics, The RAND Corporation, vol. 14(1), pages 21-43, Spring.
  4. Xepapadeas, A. P., 1991. "Environmental policy under imperfect information: Incentives and moral hazard," Journal of Environmental Economics and Management, Elsevier, vol. 20(2), pages 113-126, March.
  5. Baquet, Alan E. & Skees, Jerry R., 1994. "Group Risk Plan Insurance: An Alternative Management Tool for Farmers," Choices, Agricultural and Applied Economics Association, vol. 9(1).
  6. Bystrom, Olof & Bromley, Daniel W., 1998. "Contracting For Nonpoint-Source Pollution Abatement," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 23(01), July.
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Cited by:
  1. Paudel, Krishna P. & Gauthier, Wayne M. & Hall, Larry M. & Westra, John V., 2006. "Willingness to Participate in Dairy Programs to Reduce Manure Related Problems in Louisiana's Major Dairy Production Region," 2006 Annual Meeting, February 5-8, 2006, Orlando, Florida 35259, Southern Agricultural Economics Association.
  2. Paudel, Krishna P. & Gauthier, Wayne M. & Westra, John V. & Hall, Larry M., 2008. "Factors Influencing and Steps Leading to the Adoption of Best Management Practices by Louisiana Dairy Farmers," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 40(01), April.
  3. Ipe, Viju C. & DeVuyst, Eric A., 1999. "A Group Incentive Program For Farmer Adoption Of Best Management Practices: An Application To The Nitrate Pollution Problem In Central Illinois," 1999 Annual meeting, August 8-11, Nashville, TN 21704, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  4. Gottshall, Bryan & Paudel, Krishna, 2013. "Assessing the Efficiency of Alternative Best Management Practices to Reduce Nonpoint Source Pollution in the Broiler Production Region of Louisiana," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150463, Agricultural and Applied Economics Association.
  5. Ipe, Viju C. & DeVuyst, Eric A. & Braden, John B. & White, David C., 2001. "Simulation Of A Group Incentive Program For Farmer Adoption Of Best Management Practices," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 30(2), October.
  6. Obubuafo, Joyce & Gillespie, Jeffrey M. & Paudel, Krishna P. & Kim, Seon-Ae, 2006. "Knowledge, Application and Adoption of Best Management Practices by Cattle Farmers under the Environmental Quality Incentives Program - A Sequential Analysis," 2006 Annual Meeting, February 5-8, 2006, Orlando, Florida 35307, Southern Agricultural Economics Association.


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