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Illiquid Capital: Are Conservation Easement Payments Reinvested in Farms?

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  • Joshua M. Duke
  • Brian J. Schilling
  • Kevin P. Sullivan
  • J. Dixon Esseks
  • Paul D. Gottlieb
  • Lori Lynch

Abstract

Agricultural conservation easements have positive externalities but few studies examine the supply-side. This paper explores whether easements may also overcome a credit-market failure, as banks may not be lending based on the full developed value of land. Original survey data test our research hypotheses and show profitable owners and nonoperators to be using easement payments to extract capital from their land by using the preservation programs as a bank. The results also show that the unprofitable owners and operators are reinvesting in their agricultural enterprises. Both results are consistent with an underlying credit-market failure, and the latter suggests that easements may provide indirect efficiency enhancement. The results suggest an integration of policies on agricultural finance and land preservation might lead to improved efficiency.

Suggested Citation

  • Joshua M. Duke & Brian J. Schilling & Kevin P. Sullivan & J. Dixon Esseks & Paul D. Gottlieb & Lori Lynch, 2016. "Illiquid Capital: Are Conservation Easement Payments Reinvested in Farms?," Applied Economic Perspectives and Policy, Agricultural and Applied Economics Association, vol. 38(3), pages 449-473.
    • Handle: RePEc:oup:apecpp:v:38:y:2016:i:3:p:449-473.
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    File URL: http://hdl.handle.net/10.1093/aepp/ppw016
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    References listed on IDEAS

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    1. Patrick, Kevin & Ifft, Jennifer, 2014. "Farm Businesses Well-Positioned Financially, Despite Rising Debt," Amber Waves:The Economics of Food, Farming, Natural Resources, and Rural America, United States Department of Agriculture, Economic Research Service, issue 03, pages 1-1, April.
    2. Goodwin, Barry K. & Smith, Vincent H., 2014. "Theme Overview: The 2014 Farm Bill- An Economic Welfare Disaster or Triumph?," Choices: The Magazine of Food, Farm, and Resource Issues, Agricultural and Applied Economics Association, vol. 29(3), pages 1-4, September.
    3. Duke, Joshua M., 2004. "Participation in Agricultural Land Preservation Programs: Parcel Quality and a Complex Policy Environment," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 33(1), pages 1-16, April.
    4. Lorenzo Cappellari & Stephen P. Jenkins, 2003. "Multivariate probit regression using simulated maximum likelihood," Stata Journal, StataCorp LP, vol. 3(3), pages 278-294, September.
    5. Lynch, Lori & Carpenter, Janet, 2003. "Is There Evidence of a Critical Mass in the Mid-Atlantic Agriculture Sector Between 1949 and 1997?," Agricultural and Resource Economics Review, Cambridge University Press, vol. 32(1), pages 116-128, April.
    6. Schilling, Brian J. & Sullivan, Kevin P. & Duke, Joshua M., 2013. "Do Residual Development Options Increase Preserved Farmland Values?," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 38(3), pages 1-17.
    7. Duke, Joshua M. & Ilvento, Thomas W., 2004. "Supplying Preservation: Landowner Behavior And The Delaware Agricultural Lands Preservation Program," Research Reports 15817, University of Delaware, Department of Food and Resource Economics.
    8. Duke, Joshua M., 2008. "Estimating Amenity Values: Will It Improve Farmland Preservation Policy?," Choices: The Magazine of Food, Farm, and Resource Issues, Agricultural and Applied Economics Association, vol. 23(4), pages 1-5.
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    2. Grout, Travis & Ifft, Jennifer & Malinovskaya, Anna, 2021. "Energy income and farm viability: Evidence from USDA farm survey data," Energy Policy, Elsevier, vol. 155(C).
    3. Duke, Joshua M. & Bernard, John C. & Vitz, Gregory, 2021. "A new food label to aid farmland preservation programs: Evidence from a field experiment," Food Policy, Elsevier, vol. 99(C).

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