Pricing Agricultural Environmental Services Under Policy-Consistent Normalizations

Conservation programs differ in how they reward farmers: practice-based programs compensate for adopting management practices, while outcome-based programs pay for measured environmental improvements. Yet the private costs of compliance under these alternative designs remain unclear. We develop a duality-based framework to value agricultural environmental services under policy-consistent normalizations. A normalization selects a numeraire that reflects program objectives and determines how trade-offs among market and environmental outcomes are evaluated. Using Illinois corn production data, we demonstrate that practice-based normalizations result in lower shadow prices for carbon sequestration and greenhouse gas abatement, whereas outcome-based normalizations yield higher costs. Erosion control shows limited variation. By establishing shadow prices as policy-dependent measures, the framework provides a consistent economic basis for comparing conservation programs and setting incentive payments that align private management with environmental goals.