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Uniform or discriminating payments for environmental production on arable land under asymmetric information

  • Ing-Marie Gren

Uniform payments are often made to farmers for providing environmental goods (e.g. wetland or semi-natural landscape) on arable land. Assuming hidden information on farmers' costs of converting land for environmental purposes, this paper investigates under what conditions a uniform policy (flat-rate payment) is better than a more sophisticated mechanism that reflects provision costs. A simplified analytical case shows indeterminate results. The ranking of net benefits under the two policies depends on the relationship between the second derivatives of the environmental value and cost functions. A numerical demonstration of arable conversion to wetland in southwestern Sweden shows that net benefits under the two policies can differ significantly. Copyright 2004, Oxford University Press.

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Article provided by Foundation for the European Review of Agricultural Economics in its journal European Review of Agricultural Economics.

Volume (Year): 31 (2004)
Issue (Month): 1 (March)
Pages: 61-76

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Handle: RePEc:oup:erevae:v:31:y:2004:i:1:p:61-76
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