The asset specificity issue in the private provision of environmental services: Evidence from agro-environmental contracts

Conservation practice adoption is classically explored through the technology lens. However, by introducing the trade-off between production cost savings and higher transaction costs, involved asset specificity level should be considered too. This paper addresses this issue in the case of agri-environmental contracts, in which subscribed agri-environmental practices are freely chosen by the farmer. Several studies have examined factors influencing farmers' adoption but none have distinguished practices from their associated asset specificity level and transaction costs. We fill this gap by assuming a utility maximizing farmer who compares contract payments with compliance costs. Transaction costs being endogenous and difficult to measure, we identify conditions in which these costs vary and derive testable propositions about these conditions' effect on the choice over asset specificity level. Estimations on a sample of 328 French farmers interviewed in 2005 confirm the existence of a transaction cost barrier in agro-environmental contract adoption. They also show factors such as distrust in the Government, uncertainty stemming from the opacity of public decisions and the nonsimilarity of transactions have a significant negative effect on the probability farmers choose more specific practices.