The Role of Risk in Farmland Contract Choices

Understanding the role of risk in farmland leasing contract choices is important to assess the welfare consequences of farm policies or environmental changes that affect production risk. We use a unique dataset of landowners and tenants in Kansas to examine the role of risk in their farmland leasing contract choices. We find that greater production risk and more risk-averse landowners encourage fixed cash rent contracts. As many variables can potentially affect contract choices, we use a penalized regression to show that the inclusion of relationship variables leads to little change in the main results

Problem-Based Learning Worksheet

This problem starts with a set of assumptions, which will ensure that unique answers exist. Then, there are five parts in this exercise that represent different scenarios (states of the world): 1) no congestion and no toll, 2) no congestion with a toll, 3) congestion and no toll, 4) congestion with a $9 toll; and 5) congestion with a$10 toll. Each scenario is depicted graphically, and students should derive answers from the graphs using letters for areas (rather than calculating areas). Students with more advanced economic training can compute the areas using calculus. Discussion questions are provided to help students understand the problems and analyze the outcomes of each scenario. Appendix included as RR15-05a.Through this guided activity, students will gain a deeper understanding of congestion externalities by analyzing the welfare implications of road congestion and road tolls. Students will work in groups and report-out periodically so that the instructor can check understanding and guide learning

Linking agricultural subsidies and ambient water quality to reduce nutrient loss

Conservation compliance rules are designed to reduce soil erosion by requiring farmers to comply with specific conservation standards in order to maintain their eligibility for federal assistance programs, such as subsidized crop insurance. Conservation compliance requirements are typically connected to farmers’ individual management actions and not the resulting outcomes (e.g., nutrient loading in watersheds). In this research, we develop policies to reduce nonpoint source (NPS) pollution that link access to agricultural subsidies to ambient levels of pollution and compliance with conservation goals. Four policy environments (treatments) are tested including: 1) no-policy control, 2) linear ambient tax, 3) subsidy reduction if ambient pollution exceeds an announced threshold, and 4) subsidy reduction based on ambient pollution that individuals can avoid by adopting a costly, pollution-reducing technology. Policies are tested using laboratory experiments in which undergraduate student subjects (n=156) act as firm managers. Each manager is assigned to a group comprised of six firms and asked to make production and technology decisions that affect the profitability of his/her firm and ambient water pollution for the group. Preliminary results suggest that participants are significantly more likely to adopt a costly, pollution-reducing technology and accept lower profits when adoption provides assurance that those individuals will not be penalized for ambient pollution levels. By merging a conservation compliance framework with a penalty for ambient pollution, this work contributes to the literature on innovative NPS policies

Linking Eligibility for Agricultural Subsidies to Water Quality

National Science Foundation for the North East Water Resources Network (NEWRnet) and Center for Behavioral and Experimental Agri-environmental Research (CBEAR), which is supported by the USDA Economic Research Service

Behavioral Insights for Agri-Environmental Program and Policy Design

Insights from other behavioral sciences (e.g., psychology, neuroscience) have slowly been infiltrating mainstream economic thought and are now routinely informing the design of programs and policies in multiple domains. The same insights hold promise for designing more effective agri-environmental programs and policies. Motivated by the MINDSPACE categorization of behavioral insights introduced by Dolan et al. (2012), we develop the Ag-E MINDSPACE framework (where “Ag-E” stands for agri-environmental) to organize a review of the experimental literature on behavioral insights within the agri-environmental domain. The mnemonic MINDSPACE categorizes the behavioral impacts of messengers, incentives, norms, defaults, salience, priming, affect, commitments, and ego. Our Ag-E MINDSPACE framework further categorizes these insights as they apply to relevant agri-environmental issues, which are affected by the decisions of producers and consumers. Designed as a practical guide for researchers and an aid to practitioners in deciding which behavioral interventions to embed in their programs, this review summarizes the estimated effect sizes of behavioral interventions that are relevant for agri-environmental applications. We find that, unlike other policy domains, in which one can find dozens of relevant behavioral studies, the agri-environmental domain is characterized by a paucity of behavioral studies that can guide practitioners. Practitioners are thus forced to either (i) assume that results from other domains, which are largely focused on consumer decision-making in contexts such as healthcare, anti-poverty, education, and finance, can be applied to the agri-environmental programs and policies, or (ii) collaborate with researchers to replicate and extend the insights from other domains to important agri-environmental contexts

Too Burdensome to Bid: Transaction Costs and Pay-for-Performance Conservation

In a world free of transaction costs, reverse auctions can cost-effectively allocate payment for environmental service contracts by targeting projects that provide the most benefit per dollar spent. However, auctions only succeed if enough farmers choose to bid so that the auctioneer can evaluate numerous projects for targeted funding. A 2014 conservation auction to allocate payments for phosphorus reduction practices in NW Ohio experienced very thin bidding. According to a follow-up survey, auction participation was deterred by the complexity of the bidding process and the need to negotiate with renters. Due to low participation, the actual conservation auction made payments for phosphorus reduction that were surprisingly costly at the margin. Applying a farmer behavioral model to the Western Lake Erie Basin, we simulate participation choice and cost-effectiveness of environmental outcomes in reverse auctions and uniform payment conservation programs. Results reveal that when perceived transaction costs of bid preparation are high, reverse auctions are less cost-effective than spatially targeted, uniform payment programs that attract higher participation. Keywords: reverse auctions, transaction costs, cost-effective, conservation programs, endogenous participatio