"This paper examines the issue of incentive compatibility within environmental stewardship schemes, where incentive payments to farmers to provide environmental goods and services are based on foregone agricultural income. The particular focus of the paper is land heterogeneity, either of agricultural or environmental value, leading to divergence between the actual and socially optimal level of provision of environmental goods and services. Given land heterogeneity, such goods and services are likely to be systematically over- or under-provided in response to a flat rate payment for income foregone." Copyright (c) 2008 The Author. Journal compilation (c) 2008 The Agricultural Economics Society.