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Perverse Incentives with Pay for Performance: Cover Crops in the Chesapeake Bay Watershed

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  • Bosch, Darrell J.
  • Pease, James W.
  • Wieland, Robert
  • Parker, Doug

Abstract

Policymakers are concerned about nitrogen and phosphorus export to water bodies. Exports may be reduced by paying farmers to adopt practices to reduce runoff or by paying performance incentives tied to estimated run-off reductions. We evaluate the cost-effectiveness of practice and performance incentives for reducing nitrogen exports. Performance incentives potentially improve farm-level and allocative efficiencies relative to practice incentives. However, the efficiency improvements can be undermined by baseline shifts when growers adopt crops that enhance the performance payments but cause more pollution. Policymakers must carefully specify rules for performance-incentive programs and payments to avoid such baseline shifting.

Suggested Citation

  • Bosch, Darrell J. & Pease, James W. & Wieland, Robert & Parker, Doug, 2013. "Perverse Incentives with Pay for Performance: Cover Crops in the Chesapeake Bay Watershed," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 42(3), pages 1-17, December.
    • Handle: RePEc:ags:arerjl:161386
    DOI: 10.22004/ag.econ.161386
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    2. Asrul Gailea & Mardi & Budi Susanto, 2023. "The influence of incentives, work culture, and supervision on the work ethics of agricultural extension agents in Maluku Utara Province," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 12(4), pages 136-142, June.

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