Distributional Impacts of Cost-effective Spatially Homogeneous and Regionalized Agri-Environment Payments. A case study of a Grassland Scheme in Saxony, Germany

Economic analysis of agri-environment schemes (AES) has focused mainly on improving their cost-effectiveness. In contrast, the distributional impacts of AES have received less attention in the economic literature, even though the implementation of cost-effective policies can receive much more support, if their distributional impacts are desirable. We combine cost-effectiveness and distributional considerations and investigate empirically for a case study (a grassland program in Saxony, Germany), if trade-offs or synergies exist between improving the cost-effectiveness of an AES and its distributional impacts. We apply an ecological-economic modelling procedure to design two cost-effective AES - one scheme with spatially homogeneous payments and one with regionally differentiated payments. To compare the distributional impacts of the schemes we use the criteria of equality, equity and Rawls’ maximin criterion. Our results suggest that substantial cost-effectiveness improvements can be achieved with the spatially differentiated AES. Regarding distributional impacts, on the federal state level and within the largest region, we find a trade-off between equality and cost-effectiveness, whereas equity generally increases with improved cost-effectiveness of the AES, except in the largest region. On Rawls’ maximin criterion the spatially homogeneous payments are preferred, as they lead to the highest net benefits in the poorest region. This shows the importance of analyzing the distributional implications of cost-effective AES on different spatial levels.