Adverse Selection in the Environmental Stewardship Scheme: Evidence in the Higher Level Stewardship Scheme?
The Environmental Stewardship Scheme provides payments to farmers for the provision of environmental services based on foregone agricultural income. This creates a potential incentive compatibility problem which, combined with an information asymmetry on farm land heterogeneity, could lead to adverse selection of farmers into the Scheme and therefore reduced cost-effectiveness of the Scheme. This reduced cost-effectiveness would be represented by a systematic overpayment of farmers for the land enrolled into the Scheme, compared to the opportunity cost of production. This paper examines the potential adverse selection problem affecting the higher tier of the Environmental Stewardship, the Higher Level Stewardship, using a principal agent framework combined with farm-level data on participation in the HLS. Empirically, it is found that, at the farm level, HLS participation is negatively related to cereal yields, suggesting the existence of adverse selection in the HLS and farmer overcompensation from entering the scheme.
|Date of creation:||29 Mar 2010|
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- Feng, Hongli, 2007.
"Green Payments and Dual Policy Goals,"
Staff General Research Papers Archive
2108, Iowa State University, Department of Economics.
- Feng, Hongli, 2002. "Green Payments And Dual Policy Goals," 2002 Annual meeting, July 28-31, Long Beach, CA 19697, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
- Hongli Feng, 2007. "Green Payments and Dual Policy Goals," Center for Agricultural and Rural Development (CARD) Publications 02-wp304, Center for Agricultural and Rural Development (CARD) at Iowa State University.
- Emmanuelle Quillérou & Rob Fraser, 2010. "Adverse Selection in the Environmental Stewardship Scheme: Does the Higher Level Stewardship Scheme Design Reduce Adverse Selection?," Journal of Agricultural Economics, Wiley Blackwell, vol. 61(2), pages 369-380.
- Barreiro-Hurlé, Jesús & Espinosa-Goded, Maria & Dupraz, Pierre, 2008. "Re-considering Agri-Environmental Schemes premiums: the impact of fixed costs in sign-up decisions," 2008 International Congress, August 26-29, 2008, Ghent, Belgium 43606, European Association of Agricultural Economists.
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