Agricultural Cost Sharing and Conservation Practices for Nutrient Reduction in the Chesapeake Bay Watershed

Patrick Fleming, Erik Lichtenberg and David Newburn

No 205762, 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California from Agricultural and Applied Economics Association

Abstract: Most evaluations of the impact of cost sharing policies designed to reduce non-point source pollution on water quality fail to incorporate behavioral responses, which are important because of the voluntary nature of these programs. In this article, a two-stage simultaneous equation approach is applied to data from a farmer survey to correct for voluntary self-selection into cost sharing programs, and account for substitution effects among conservation practices. The estimates obtained from the econometric model are linked with the Chesapeake Bay Program watershed model to estimate the change in abatement levels and marginal abatement costs for nitrogen, phosphorus and sediment after considering non-additional adoption due to nonrandom enrollment, as well as potential indirect effects on other conservation practices. We find that policy scenarios which do not account for non-additional adoption significantly overestimate the abatement achieved by environmental incentive payments. Accounting for nonrandom enrollment increases the average marginal cost of abatement by between 37 and 85 percent across the state of Maryland. However, estimated indirect effects of cost sharing suggest the presence of “crowding in” of other practices, leading to greater abatement and lower costs, particularly for phosphorus and sediment.

Keywords: Environmental Economics and Policy; Research Methods/ Statistical Methods (search for similar items in EconPapers)
Pages: 30
Date: 2015
New Economics Papers: this item is included in nep-env
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:ags:aaea15:205762

DOI: 10.22004/ag.econ.205762

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