- A reverse auction, in which farmers submit a bid of how much they would need to be paid in order to adopt one of these practices;
- A uniform payment program, in which everyone is paid the same amount for adopting a certain practice and enrolled on a first come, first served basis;
- Another uniform payment program targeted to the most vulnerable areas of the watershed, in which only farmers in those areas were allowed to enroll; and
- A program in which farmers were actually offered the exact amount of money they would require to adopt a certain practice, a program that Palm-Forster said would never exist in reality but that was used as a baseline.
When it comes to creating agri-environmental programs to help farmers adopt best management practices (BMPs) that will help protect the land and not hinder crop yields, new research from the University of Delaware shows that it is best to keep the programs simple. Both real and perceived transaction costs — the time and effort it takes farmers to enroll in the programs — are detrimental and limit the amount of participation. This is especially true when reverse auctions are used in the enrollment process for agri-environmental programs. The research was led by Leah Palm-Forster, assistant professor in UD’s Department of Applied Economics and Statistics, and was published recently in the American Journal of Agricultural Economics. Palm-Forster conducted the research with Scott Swinton, Frank Lupi, and Robert Shupp, who are all faculty at Michigan State University. The research is part of a larger study Palm-Forster conducted while a graduate student at Michigan State University that was recently published in the Journal of Great Lakes Research. Agri-environmental programs have financial incentives that are usually set up in a cost-share, through which a government program will pay a certain rate to have a farmer adopt a management practice that provides environmental benefits. These programs rely heavily on voluntary participation. “Farmers’ management practices have a large impact on the environment, in addition to producing all the food and fuel and fiber we consume. In the U.S., in order to get some of these environmental benefits, we rely on voluntary agri-environmental programs. For the most part, we’re not telling farmers that they have to enroll in these programs and adopt certain practices but we’re trying to provide incentives for them to do so. It basically promotes the use of agricultural practices that provide environmental benefits,” said Palm-Forster. For the study, the research team used a simulation model that took information gleaned from previous research on the Lake Erie Basin focused on phosphorus runoff and toxic algal blooms. Using information from their work with farmers in the area and biophysical data about the landscape, the researchers put all of the information into an economic behavioral model to predict if farmers would enroll or not based on four different programs to see which would provide the most environmental benefits with the limited conservation budget. The programs included: