Valuing Ecosystem Services for Agricultural TFP: A Review of Best Practices, Challenges, and Recommendations

This paper provides a brief overview of methods to incorporate ecosystem service values into measures of agricultural total factor productivity (TFP), both in theory and in practice. This includes a review of the academic literature, a summary of related economic index theory, and a comparison of agency guidelines. We consider areas of consensus between the agencies and the research literature, as well as open debates surrounding the implementation of a standardized ecosystem accounting framework to integrate with existing TFP measures. This helps to bridge the gap between theoretical approaches to measurement and valuation in the research literature and their implementation in practice by national accounting agencies. Better connecting theory to practice also serves to highlight common challenges in the field, including questions of definition, scope, and scale for ecosystem services, as well as data collection and dissemination. We end with a summary of recommendations for moving forward

Assessing the Productivity Consequences of Agri-Environmental Practices When Adoption Is Endogenous

We address the general problem of selection bias, endemic to analyzing the effects of any policy where adoption is voluntary, with empirical application to environmental policies for agriculture. Many voluntary practices for mitigating the environmental impacts of agriculture provide external benefits while lowering productivity. Policy analysis of the productivity consequences is complicated by the fact that decision-makers can choose their own policy levers, an action that ruins any notion of random assignment. We introduce an identification strategy to correct this kind of endogeneity, combining classic methods from stochastic frontier analysis and selection models. Applying it to micro-level data from Finnish grain farms, we find that more efficient producers are more likely to enroll in subsidized practices. And, because these practices tend to reduce yield, frontier analysis without the endogeneity correction greatly understates productivity losses. In other words, naively basing the frontier estimator on the subset of less productive farms leads to downward bias in the resulting frontier estimates. In fact, average inefficiency more than doubles after the correction in this case. An outlier investigation also suggests that the lowest decile of farms are responsible for most of the selection bias in the uncorrected model.nonPeerReviewe

Assessing The Impact Of Agri-Environmental Management Practices On Farm Productivity When Adoption Is Endogenous

Environmental management practices for mitigating nutrient runo aect the productivity of agricultural land. Finland's agricultural policy oers a number of such practices, and we use Finnish grain farms as a case study of these productivity impacts. Productivity is endogenous with adoption when decisionmakers can choose from a menu of policy options, but few studies actually address this endogeneity. Our identication strategy thus involves a novel approach for correcting endogeneity, combining classic methods from stochastic frontier analysis and selection models. Using registry data from 2007-2013, we nd that the more ecient farms are also more likely to enroll in management practices. Standard estimates without the endogeneity correction understate productivity losses after adoption

Assessing the productivity consequences of agri-environmental practices when adoption is endogenous

We address the general problem of selection bias, an issue endemic to policy analysis when adoption is voluntary, with an empirical application to environmental policies for agriculture. Many voluntary practices for mitigating the environmental impacts of agriculture provide external benefits while lowering productivity. Policy analysis of the productivity consequences is complicated by the fact that decision makers can choose their own policy levers, an action that ruins any notion of random assignment. We introduce an identification strategy to correct this kind of endogeneity, combining classic methods from stochastic frontier analysis and selection models. Applying it to micro-level data from Finnish grain farms, we find that more efficient producers are more likely to enroll in subsidized practices. And, because those practices tend to reduce yield, frontier analysis without the endogeneity correction greatly understates the productivity loss. In other words, naïvely basing the frontier estimator on the subset of less-productive farms leads to downward bias in the frontier estimates. In fact, average inefficiency more than doubles after the correction in this case. An outlier investigation suggests that the lowest decile of farms are responsible for most of the selection bias in the uncorrected model.peerReviewe

Productivity-Based Indicators for Nitrogen Use Efficiency

Nitrogen use efficiency (NUE) is often used to evaluate an agricultural system's relative ability to process nitrogen (N) inputs. However, no universal indicator has simultaneously considered both economic and environmental objectives. We develop Luenberger indicators of NUE that incorporate both economic and environmental objectives to examine spatio-temporal changes in NUE, which we apply to the Upper Mississippi River Basin (UMRB) for the period 2002-2012. We find considerable spatial-temporal variation in NUE, which could be used to inform future agri-environmental policy and conservation targeting decisions in the UMRB. Using this approach could lead to more cost-effective targeting of areas for N reduction in the UMRB

Production effects of wetland conservation: evidence from France

This study takes a production function approach to examine the effects of farm wetland area for a set of producers in the Limousin region of France. By combining data from a recent survey of regional wetland areas with detailed farm-level production panel data, we find that maintaining wetland areas poses significant costs to farmers, in terms of foregone production value. These results help to explain the relatively low participation rate in agri-environmental schemes targeted to wetlands by farmers in this region. This represents a new application of the production function approach to estimate the cost of maintaining wetlands on working agricultural land, and is one of few studies to examine agricultural wetland costs outside of the US. This framework could be used to further inform payment incentives for agrienvironmental schemes more generally.La productivité des zones humides agricole est étudiée par la spécification d’une fonction de production, estimée sur un ensemble de producteurs agricoles de la Région française du Limousin. L’analyse des données de panel rassemblant les comptabilités d’une centaine d’exploitation suivies pendant trois ans montre que le maintien agricole des zones humides implique des coûts significatifs en termes de pertes de production. Ces résultats aident à comprendre la relative faiblesse de l’adoption par les agriculteurs des mesures agroenvironnementales ciblant les zones humides de cette région. Ce travail est une nouvelle application de l’approche par la fonction de production pour estimer le coût de maintien des zones humides, et l’une des rares applications sur ce thème, hors des Etats-Unis. La méthodologie peut être utilisée pour l’établissement de paiements incitatifs dans le cadre de programmes agri-environnementaux ou pour des services environnementaux en général

Production effects of wetland conservation: evidence from France

This study takes a production function approach to examine the effects of farm wetland area for a set of producers in the Limousin region of France. By combining data from a recent survey of regional wetland areas with detailed farm-level production panel data, we find that maintaining wetland areas poses significant costs to farmers, in terms of foregone production value. These results help to explain the relatively low participation rate in agri-environmental schemes targeted to wetlands by farmers in this region. This represents a new application of the production function approach to estimate the cost of maintaining wetlands on working agricultural land, and is one of few studies to examine agricultural wetland costs outside of the US. This framework could be used to further inform payment incentives for agri-environmental schemes more generally

Towards a hierarchical optimization framework for spatially targeting incentive policies to promote green infrastructure amidst multiple objectives and uncertainty

We introduce a hierarchical optimization framework for spatially targeting green infrastructure (GI) incentive policies in order to meet objectives related to cost and environmental effectiveness. The framework explicitly simulates the interaction between multiple levels of policy makers (e.g., local, regional, national) and policy followers (e.g., landowners, communities) and is especially useful for constructing and evaluating environmental and ecological policy. Using the framework with a hypothetical urban watershed, we present trade-offs between policy cost and environmental benefits (e.g., water usage, nutrient run-off) using GI incentive policies. In addition, we introduce uncertainties related to policy budget, compliance, and GI effectiveness and show that robust policies (with respect to each uncertainty type) are possible at the expense of reductions in overall objective performance. Overall, we demonstrate the utility of hierarchical optimization as a framework for targeting incentives to promote effective GI that ensures robust policies amidst conflicting objectives and uncertainty