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Perverse Incentives with Pay for Performance: Cover Crops in the Chesapeake Bay Watershed

Published online by Cambridge University Press:  15 September 2016

Darrell J. Bosch ,
James W. Pease ,
Robert Wieland  and
Doug Parker
Darrell J. Bosch*
Affiliation:
Department of Agricultural and Applied Economics at Virginia Tech, Blacksburg, Virginia
James W. Pease
Affiliation:
Department of Agricultural and Applied Economics at Virginia Tech, Blacksburg, Virginia
Robert Wieland
Affiliation:
Main Street Economics in Trappe, Maryland
Doug Parker
Affiliation:
California Institute for Water Resources at University of California Agriculture and Natural Resources
*
Correspondence: Darrell Bosch ▪ Department of Agricultural and Applied Economics ▪ Virginia Tech ▪ Blacksburg, VA 24060 ▪ Telephone 540.231.5265 ▪ Email bosch@vt.edu.
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Abstract

Policymakers are concerned about nitrogen and phosphorus export to water bodies. Exports may be reduced by paying farmers to adopt practices to reduce runoff or by paying performance incentives tied to estimated run-off reductions. We evaluate the cost-effectiveness of practice and performance incentives for reducing nitrogen exports. Performance incentives potentially improve farm-level and allocative efficiencies relative to practice incentives. However, the efficiency improvements can be undermined by baseline shifts when growers adopt crops that enhance the performance payments but cause more pollution. Policymakers must carefully specify rules for performance-incentive programs and payments to avoid such baseline shifting.

Keywords

baselineChesapeake Baycover cropsexportmathematical programmingnitrogenperformance incentivepractice incentive
Type
Contributed Papers
Information
Agricultural and Resource Economics Review , Volume 42 , Issue 3 , December 2013 , pp. 491 - 507
Copyright
Copyright © 2013 Northeastern Agricultural and Resource Economics Association 

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