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Incentive Payment Programs for Environmental Protection: A Framework for Eliciting and Estimating Landowners' Willingness to Participate

  • Siikamäki, Juha

    ()

    (Resources for the Future)

  • Layton, David

This paper considers the role of incentive payment programs in eliciting, estimating, and predicting landowners’ conservation enrollments. Using both program participation and the amount of land enrolled, we develop two econometric approaches for predicting enrollments. The first is a multivariate censored regression model that handles zero enrollments and heterogeneity in the opportunity cost of enrollments by combining an inverse hyperbolic sine transformation of enrollments with alternative-specific correlation and random parameters. The second is a beta-binomial model, which recognizes that in practice elicited enrollments are essentially integer valued. We apply these approaches to Finland, where the protection of private nonindustrial forests is an important environmental policy problem. We compare both econometric approaches via cross-validation and find that the beta-binomial model predicts as well as the multivariate censored model yet has fewer parameters. The beta-binomial model also facilitates policy predictions and simulations, which we use to illustrate the framework.

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Paper provided by Resources For the Future in its series Discussion Papers with number dp-05-57.

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Date of creation: 07 Dec 2005
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Handle: RePEc:rff:dpaper:dp-05-57
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  1. Joseph C. Cooper, 2003. "A Joint Framework for Analysis of Agri-Environmental Payment Programs," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 85(4), pages 976-987.
  2. Luanne Lohr & Timothy A. Park, 1995. "Utility-Consistent Discrete-Continuous Choices in Soil Conservation," Land Economics, University of Wisconsin Press, vol. 71(4), pages 474-490.
  3. Klaus Moeltner & J. Scott Shonkwiler, 2005. "Correcting for On-Site Sampling in Random Utility Models," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 87(2), pages 327-339.
  4. Tahvonen, Olli & Salo, Seppo, 1999. "Optimal Forest Rotation within SituPreferences," Journal of Environmental Economics and Management, Elsevier, vol. 37(1), pages 106-128, January.
  5. David F. Layton & Klaus Moeltner, 2000. "A Censored Random Coefficients Model for Pooled Survey Data with Application to the Estimation of Power Outage Costs," Econometric Society World Congress 2000 Contributed Papers 0912, Econometric Society.
  6. Butler, J S & Moffitt, Robert, 1982. "A Computationally Efficient Quadrature Procedure for the One-Factor Multinomial Probit Model," Econometrica, Econometric Society, vol. 50(3), pages 761-64, May.
  7. Parks P. J. & Kramer R. A., 1995. "A Policy Simulation of the Wetlands Reserve Program," Journal of Environmental Economics and Management, Elsevier, vol. 28(2), pages 223-240, March.
  8. Daniel Feenberg & Jonathan Skinner, 1992. "The Risk and Duration of Catastrophic Health Care Expenditures," NBER Working Papers 4147, National Bureau of Economic Research, Inc.
  9. Wu, JunJie & Babcock, Bruce A., 1995. "Optimal Design of a Voluntary Green Payment Program Under Asymmetric Information," Staff General Research Papers 843, Iowa State University, Department of Economics.
  10. Polasky, Stephen & Doremus, Holly, 1998. "When the Truth Hurts: Endangered Species Policy on Private Land with Imperfect Information," Journal of Environmental Economics and Management, Elsevier, vol. 35(1), pages 22-47, January.
  11. Joseph C. Cooper & Russ W. Keim, 1996. "Incentive Payments to Encourage Farmer Adoption of Water Quality Protection Practices," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(1), pages 54-64.
  12. J. Shonkwiler & Nick Hanley, 2003. "A New Approach to Random Utility Modeling using the Dirichlet Multinomial Distribution," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 26(3), pages 401-416, November.
  13. David F. Layton, 2001. "Alternative Approaches for Modeling Concave Willingness to Pay Functions in Conjoint Valuation," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(5), pages 1314-1320.
  14. Lori Lynch & Sabrina J. Lovell, 2003. "Combining Spatial and Survey Data to Explain Participation in Agricultural Land reservation Programs," Land Economics, University of Wisconsin Press, vol. 79(2), pages 259-276.
  15. Segerson, Kathleen & Miceli, Thomas J., 1998. "Voluntary Environmental Agreements: Good or Bad News for Environmental Protection?," Journal of Environmental Economics and Management, Elsevier, vol. 36(2), pages 109-130, September.
  16. Smith, Rodney B. W. & Shogren, Jason F., 2002. "Voluntary Incentive Design for Endangered Species Protection," Journal of Environmental Economics and Management, Elsevier, vol. 43(2), pages 169-187, March.
  17. Steven T. Yen & Andrew M. Jones, 1997. "Household Consumption of Cheese: An Inverse Hyperbolic Sine Double-Hurdle Model with Dependent Errors," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(1), pages 246-251.
  18. Anna Alberini & Kathleen Segerson, 2002. "Assessing Voluntary Programs to Improve Environmental Quality," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 22(1), pages 157-184, June.
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