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Additionality in Payments for Environmental Service Contracts with Technology Diffusion

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  • Pates, Nicholas J.
  • Hendricks, Nathan P.

Abstract

Voluntary incentive payments, also known green subsidies are a popular method to incentivize farmers into adopting environmentally friendly practices. The United States Department of Agriculture’s (USDA) latest budget directs over 4.5 billion dollars toward programs like the Conservation Reserve Program (CRP), the Environmental Quality Incentives Program (EQIP), and the Conservation Stewardship Program (CStP) and plans to have 380 million acres enrolled in these programs in 2016. The prominence of these programs mean both conservationists and taxpayers have a serious stake in their effectiveness. One concern with these programs is that they may provide little additional environmental benefits relative to what would have occurred in the absence of the program. This paper performs a discrete dynamic optimization simulation to study additionality in a dynamic environment. This allows us to directly study moral hazard as it relates to non-additionality and even delayed adoption from green payment programs. We show that larger programs do not necessarily generate more additionality and that especially poor policies can slow green practice diffusion.

Suggested Citation

  • Pates, Nicholas J. & Hendricks, Nathan P., 2016. "Additionality in Payments for Environmental Service Contracts with Technology Diffusion," 2016 Annual Meeting, July 31-August 2, 2016, Boston, Massachusetts 236066, Agricultural and Applied Economics Association.
  • Handle: RePEc:ags:aaea16:236066
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    File URL: http://purl.umn.edu/236066
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    References listed on IDEAS

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    1. Lyubov Kurkalova & Catherine Kling & Jinhua Zhao, 2006. "Green Subsidies in Agriculture: Estimating the Adoption Costs of Conservation Tillage from Observed Behavior," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 54(2), pages 247-267, June.
    2. Jaffe, Adam B. & Newell, Richard G. & Stavins, Robert N., 2005. "A tale of two market failures: Technology and environmental policy," Ecological Economics, Elsevier, vol. 54(2-3), pages 164-174, August.
    3. Khanna, Madhu & Isik, Murat & Zilberman, David, 2002. "Cost-effectiveness of alternative green payment policies for conservation technology adoption with heterogeneous land quality," Agricultural Economics of Agricultural Economists, International Association of Agricultural Economists, vol. 27(2), August.
    4. Dirk Czarnitzki & Georg Licht, 2006. "Additionality of public R&D grants in a transition economy," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 14(1), pages 101-131, March.
    5. Mariano Mezzatesta & David A. Newburn & Richard T. Woodward, 2013. "Additionality and the Adoption of Farm Conservation Practices," Land Economics, University of Wisconsin Press, vol. 89(4), pages 722-742.
    6. Horowitz, John K. & Just, Richard E., 2013. "Economics of additionality for environmental services from agriculture," Journal of Environmental Economics and Management, Elsevier, vol. 66(1), pages 105-122.
    7. Claassen, Roger & Duquette, Eric & Horowitz, John & Kohei, Ueda, 2014. "Additionality in U.S. Agricultural Conservation and Regulatory Offset Programs," Economic Research Report 180414, United States Department of Agriculture, Economic Research Service.
    8. Sunding, David & Zilberman, David, 2001. "The agricultural innovation process: Research and technology adoption in a changing agricultural sector," Handbook of Agricultural Economics,in: B. L. Gardner & G. C. Rausser (ed.), Handbook of Agricultural Economics, edition 1, volume 1, chapter 4, pages 207-261 Elsevier.
    9. Lichtenberg, Erik, 2014. "Conservation, the Farm Bill and U.S. Agri-Environmental Policy," Choices, Agricultural and Applied Economics Association, vol. 29(3).
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    Keywords

    additionality; diffusion; moral hazard; adverse selection; dynamic; policy; environmental; Environmental Economics and Policy; Resource /Energy Economics and Policy;

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