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A Group Incentive Contract To Promote Adoption Of Best Management Practices

  • 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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File URL: http://purl.umn.edu/30803
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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)
Pages:

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Handle: RePEc:ags:jlaare:30803
Contact details of provider: Web page: http://waeaonline.org/

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  1. 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.
  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. 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).
  4. 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.
  5. Joseph C. Cooper & Russ W. Keim, 1996. "Incentive Payments to Encourage Farmer Adoption of Water Quality Protection Practices," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(1), pages 54-64.
  6. 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.
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