Optimal Contract Length for Voluntary Land Conservation Programs

Xiaoxuan Chen and Amy Whritenour Ando ()

No 21259, 2006 Annual meeting, July 23-26, Long Beach, CA from American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association)

Abstract: In many parts of the world, deteriorating environmental conditions have led policy makers to develop policies and programs aimed at promoting conservation practices on lands devoted to agriculture. Such programs have been studied by environmental economists, but little research has been done on the usefulness of strategically varying the conservation contract’'s length. This paper uses theory and simulation to investigate the optimal contract length of land conservation programs when a policy maker tries to maximize the present discounted value of the stream of environmental benefits from the program. We find that contract length should vary with characteristics of the ecological processes that yield benefits from land retirement. Optimal contracts are longer when the environmental benefits in question – things like woodland biodiversity – take time to develop. However, it is not typically optimal to have the indefinitelylived contracts favored by some conservation groups, or even to offer contracts as long as the maturation period for the environmental services in question. In general, the optimal contract length depends on the trade off between an ecological effect (increasing the environmental benefits from one farmer) and an enrollment effect (increasing the number of farmers enrolled). Our findings also suggest that non-ecological regional characteristics (such as turnover rate and average farm income) could play an important role in the design of conservation programs.

Keywords: Environmental Economics and Policy (search for similar items in EconPapers)
Date: 2006
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