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Experimental auctions to evaluate incentives for cost-effective agricultural phosphorus abatement in the Great Lakes

Author

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  • Harris, Leah M.
  • Swinton, Scott M.
  • Shupp, Robert S.

Abstract

Research on payments for environmental services (PES) largely focuses on two contract types – cost-share and annual stewardship payments. But other types of transactions, such as tax credits, green insurance, and price premiums tied to environmental stewardship certification, can also promote conservation. Using experimental conservation procurement auctions we evaluate farmers’ willingness to adopt agricultural best management practices (BMPs) that reduce phosphorus runoff from farm land in the Maumee watershed to help abate damaging algal blooms in western Lake Erie. We determine how bids change depending on the type of transaction offered (e.g. payment, payment with green BMP insurance, tax credit, price premium tied to stewardship certification) to identify cost-effective incentive mechanisms that reduce the most phosphorus runoff per dollar of payment. Two kinds of transactions were found to be less cost-effective: a price premium for product certification and PES with green insurance to protect against yield loss from BMP adoption. The certification price premium cannot spatially target conservation practices to vulnerable locations, so average impact per dollar of payment (and hence cost-effectiveness) is reduced. Green insurance is perceived to have high transaction costs so it elicits demand for higher payments, reducing its cost-effectiveness.

Suggested Citation

  • Harris, Leah M. & Swinton, Scott M. & Shupp, Robert S., 2014. "Experimental auctions to evaluate incentives for cost-effective agricultural phosphorus abatement in the Great Lakes," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 170287, Agricultural and Applied Economics Association.
  • Handle: RePEc:ags:aaea14:170287
    DOI: 10.22004/ag.econ.170287
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    File URL: http://ageconsearch.umn.edu/record/170287/files/AAEAPaper_2014_Harris_Swinton_Shupp_updated.pdf
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    References listed on IDEAS

    as
    1. Kurt B. Waldman & John M. Kerr, 2014. "Limitations of Certification and Supply Chain Standards for Environmental Protection in Commodity Crop Production," Annual Review of Resource Economics, Annual Reviews, vol. 6(1), pages 429-449, October.
    2. Mitchell, Paul D., 2004. "Nutrient Best Management Practice Insurance and Farmer Perceptions of Adoption Risk," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 36(3), pages 1-17, December.
    3. Cason, Timothy N. & Gangadharan, Lata & Duke, Charlotte, 2003. "A laboratory study of auctions for reducing non-point source pollution," Journal of Environmental Economics and Management, Elsevier, vol. 46(3), pages 446-471, November.
    4. Peter C. Boxall & Orsolya Perger & Marian Weber, 2013. "Reverse Auctions for Agri-Environmental Improvements: Bid-Selection Rules and Pricing for Beneficial Management Practice Adoption," Canadian Public Policy, University of Toronto Press, vol. 39(s2), pages 23-36, August.
    5. S. Bowles & S. Polania-Reyes., 2013. "Economic Incentives and Social Preferences: Substitutes or Complements?," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 5.
    6. Shan Ma & Scott M. Swinton & Frank Lupi & Christina Jolejole-Foreman, 2012. "Farmers’ Willingness to Participate in Payment-for-Environmental-Services Programmes," Journal of Agricultural Economics, Wiley Blackwell, vol. 63(3), pages 604-626, September.
    7. Schilizzi, Steven & Latacz-Lohmann, Uwe, 2013. "Conservation tenders: linking theory and experiments for policy assessment," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 57(1), pages 1-23.
    8. Mitchell, Paul D. & Hennessy, David A., 2003. "Factors Determining Best Management Practice Adoption Incentives and the Impact of Green Insurance," Staff General Research Papers Archive 10418, Iowa State University, Department of Economics.
    9. Steven Schilizzi & Uwe Latacz-Lohmann, 2013. "Conservation tenders: linking theory and experiments for policy assessment," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 57(1), pages 15-37, January.
    10. Kroeger, Timm & Casey, Frank, 2007. "An assessment of market-based approaches to providing ecosystem services on agricultural lands," Ecological Economics, Elsevier, vol. 64(2), pages 321-332, December.
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    Keywords

    Environmental Economics and Policy; Land Economics/Use;

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